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UNITED STATES OF AMERICAFEDERAL TRADE COMMISSIONWASHINGTON, D.C. 20580

Project Code: DXIMEMORANDUM
TO:
FROM:

DATE:

August 8, 2012

SUBJECT:

Googlc Inc.
File No. 111-0163 1

RECOMMENDATION:

That the Commission Issue the Attached Complai t

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natural and probable effect ofGoogle's conduct is to diminish the incentives of verticalwebsites to invest in, and to develop, new and innovative content. Jn the alternative,
Googlc's conduct may be condemned as a stand-alone violation of Section 5. Google haspresented no efficiency justifi cation for its conduct.
Third, Staff has investigated whether Google has employed ru1ticompetifve
contractual restrictions on the a· utomated cross-management of advertising camp,laigns.

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Google's main rival (Microsoft) has alleged that Googlc is denying Microsoft c ·tical scaleby employing these restrictions, and thus impairing Microsoft's ability to compe e effectively
in the markets for general search and search advertising. We conclude that thes restrictions
should be condemned under Section 2 because they limit the ability of advertisers to makeuse of their own data, and as such, have reduced innovation and increased transaction costs
among advertisers and third-party businesses, and also degraded the quality ofGoogle's
rivals in search and search advertising. Google 's proffered efficiency justification for theserestrictions appears to be pretextual.
Fourth, Staff has investigated whether Google has entered into anticomprtive,
exclusionary agreements with websites for syndicated search and search advcrtisrng services.
We conclude that Google's agreements should be condemned under Section 2 because they
foreclose some p01tion of the market, and, although the agreements result in only modest
anticompetitive effects on publishers, the impact of the agreements in denying scale tocompetitors is both competitively significant to its main rival (Microsoft) today, as well as asignificant barrier to entry for potential entrants in the longer term. While Googe presents
efficiency justifications for these agreements, on balance, Staff finds them to be nonpersuasive.

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TABLE OF CONTENTSI.

II.

HISTORY OF THE ~VESTIGATIO~ AND RELATED PROCEED~GS ... -1A.

FTC Investigation ...•...............................................................-1-

B.

European Commission Investigation ...........................................-2-

C.

Multi-State Investigation ........................... .............................. -3-0.

Private Litigation .... , ...............................................................-3-

STATEMENT OF FACTS ................................................................-4A.

The Parties .............................................................. . . . . . . . . . . . . -41

1.

Coogle ........................................................... , .............-4-

2.

General Search Competitors .............................................-5-

3.

4.

B.

a.

Microsoft ............................................................-5-b.

Yahoo! ...............................................................-5-

Major Vertical Complainants ...........................................-6-a.

Amazon .................................................... .........-6-b.

eBay ..................................................................-.6-c.

NexTag .............................................................-6-d.

Foundem ...........................................................-6-e.

Expedia ................................... .........................-7-f.

TripAdvisor ........................................................-7-g.

Yelp . .. . .. . ............. . ....... . . .....................................-7-

Facebook ........................................................ ............-7-

Industry Background ............................. · · · .. · .. · · · · · · .. · .. ·1.

T.... ·.......-8

General Search ....................................... ........ ·~· ...........-8-

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a.

Overview of the AdWords Platform .........................-41-b.

The Restrictive Conditions ............................•....... -43-c.

Effects of the Restrictive Conditions ............... .........-44i.

Effects on Advertisers and Search Engi eMarketers ("SEMs") .................................-44-

ii.

Effects on Competitors .............. .................-46-

d.
4.

Ill.

Internal Googlc Discussions Regarding the
Restrictions .......................................................-48-

Google's Exclusive and Restrictive Syndication
Agreements ....................................................................................-51a.

Publishers and Market Structure ............................-52-b.

Development of the .Market for Search Syndication ......-53-

c.

Specifics of Coogle's Syndication Agreements ............-53-

d.

Effects of Exclusivity and Preferred Placement ...........-55i.

Common Publisher Responses .......................-55-

ii.

Publishers' Views of Exclusivity Provisi ns ...... -58-

iii.

Effects on Competitors .................................-63-

LEGAL ANALYSIS .................. ... ........................ ..........................-63A.

Google Has Monopoly Power in Relevl:lnt Markets ........................-64L.

2.

Relevant Markets and Market Shares ........................... ....-64a.

Horizontal Search ...............................................-64-b.

Search Advertising ..............................................-69-

c.

Syndicated Search and Search Advertising("Search Intermediation'') .........................

r... . ··.

-73-

Substantial Barriers to Entry Exist ...................................-75-

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4.

IV.

Coogle's Exclusive and Restrictive Syndication
Agreements ..................................................................................-1 02-

Ia.

Google's Agreements Foreclose a Substantial
Portion of tbe Relevant Market .............................-1 02-b.

Goog1e's Agreements Have Resulted In
Anticompetitive Effects ...................................... -105-c.

Coogle's Agreements Are Not .J usti fiedB)' E fficienci cs .... ............ , . . . . . . . . . •. . •. •. . . . . . •. . .•... .•..-11 0-

POTENTIAL REMEDIES ............................................. ....... . ........-112A.

Scraping ................................................................. , ..........-112-

B.

API Restrictions ..................................................................-113-

C.

Exclusive and Restrictive Syndication Agreements .......................-113-

V.

LITIGATION RISKS ....................................................................-114-

VI.

CONCLUSION ........................ .................... .... ... ............. ............-116APPENDICESAPPENDIX 1: Table of Exclusive Agreements ..................................................-1APPENDIX 2: Table of Preferred Placement Agreements ...................................-!AJ>PENDIX 3: Explanation of Data Sources ...................................................-1APPENDIX 4: Glossary of Terms ................................................................-1-

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B.

EUROPEAN COMMISSION INVESTIGATIONThe European Commission ("EC") has been conducting a parallel investigation of
Google since November 2010. On May 21, 2012, Commissioner Joaquin Aim·a issued

Googlc a letter, signaling the EC's possible intent to issue a Statement ofObjec ions ("SO")against Google for abuse of dominance in violation of Article I 02 of the EC Tr aty. The
letter set out the EC's concern in four areas: (I) Google's "favourable treatmen of its own
vettical search services as compared to those of its competitors in its nah1ral sea ch results";(2) Google's "practice of copying third party content" to supplement its own ve ical
ofTcrings; (3) Google's "exclusivity agreements with publishers for the provisio of searchadvertising intem1ediation services"; and (4) Google' s " restrictions with regard to theportability and cross-platform management of online advertising campaigns.'.4
In his letter, Commissioner Almunia offered Googlc the opportunity to resolve theconcerns prior to the issuance of an SO by coming forward "with a written description of
possible solutions" to the EC's eoncems. 5
On June 30, 2012, Google submitted a settlement proposal to the EC. Although
Googlc denied any infringement of European Union ("EU") competition law, Google
proposed to enter into several "commitments," designed to address the EC's sta 'e d concerns.6
FTC staff has coordinated closely with EC staff throughout the course o our parallelinvestigations. Staffhas received waivers from Googlc, Microsoft, Yahoo! , an a handful ofother parties to discuss and exchange infonnation with the EC. Staff has had regulartelephone calls with EC staff, where we have updated one another on theories
We have also exchanged documents of mutual interest.

2d evidence.

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Google to tott liability. The Kinderstart court also dismissed the plaintift"s complaint,
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rejecting the claim that Google's search results were an essential facility for verticalwebsites, because Kindcrstart had not been e liminated from the downstream mlket andcontinued to get high rankings from other search cngincs.

14

The AdWords cases address a common fact pattern, but are decided on
grounds. Plaintiffs in these cases argued that Google increased the minimum bi s for the
keywords the website had purchased, which made those keywords effectively u available,
thus depriving the plaintiff website oftrat1ic. The complaint in TradeComet.co , LLC v.
Coogle, inc. 15 was dismissed for improper venue, while the allegations in Goog e, Inc. v.
myTriggers. com, inc.

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were dismissed on grounds that they failed to describe harm tocompetition as a whole. Both cases were dismissed with little discussion of the merits.
In Person v. Coogle, Inc., 11 Judge Fogel of the Northern District of California
criticized the plaintiffs market definition, finding no basis for distinguishing th alleged"search advertising market" fro m the larger market for Internet advcrtising. 18 The Ninth
Circuit affirm ed the conclusion that the plaintiff failed to plead facts sufficient to raise theallegations in its complaint beyond a speculative level, but did not address mar t
dcfinition. 19

II.

STATEMENT OF FACTS

A.

THE P ARTTES
1.

GoogleGooglc is an Internet search technology company, founded in 1998 and eadquarteredin Mountain View, California. Googlc's products and services include a genera "horizontal"
search engine, as well as numerous integrated "vertical'' websites that focus on specific

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3.

Major Vertical Complainants

Staff has met with, interviewed, and subpoenaed numerous vertical websites offering
shopping, travel, local, and financial services. We identify here some of the rna
complainants. ln general, these companies complain tbat Google's practice of referencing
its own vertical results over the complainants' websites on Google 's search pag has
negatively impacted the complainants' ability to compete for users and advertis rs.

a.

AmazonAmazon is the world's Largest online retailer, and also produces consum r
electronics, notably the Amazon Kindle e-book reader and the Kindle Fire tablet. Amazon's
product search feature competes with Google Product Search.

b.

eBay

eBay operates an online auction and shopping website in which people and businesses
buy and sell a broad variety of goods and services worldwide. eBay has expan*d from its
origina l "set-time" auction format to include "Buy It Now" standard shopping, nd a variety
of other services. eBay's product search feature competes with Google Product Search.

c.

NexTagNexTag is a shopping comparison website in the U.S. that competes wi

GoogleProduct Search.

d.

Foundcm

Foundem is a shopping comparison website in the United Kingdom that competes
with Googlc Product Search. We understand that Foundem was the first vertica website to
publicly accuse Google ofpreferencing its own vertical content over that of co petitors on

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recently introduced social networking site, Google Plus. Facebook has complained, among
other things, that Google's prcfercncing of Google Plus results over Facebook results on
Google's search page is negatively impacting its ability to compete for users.

B.

INDUSTRY BACKGROUND
1.

General Search

The Internet is a vast, largely unorganized collection of constantly chan ing
information. If the Internet can be roughly analogized to a huge and highly dyn mic library,then algorithmic search engines are the card cata log.
Unlike a traditional library, the Internet is too large and changes too rapidly fortraditional cataloging. 32 Instead, search engines (like Google) deploy computer programs
that constantly "crawl" the web, building and updating automated indexes of web content.
Similarly, the process of finding relevant information inside these web indexes is automated.
Sophisticated algorithms evaluate the content of the end user's request for information todetermine which parts of the web index may contain relevant responses. The identified
potential responses arc then ranked by additional algorithms based on the predicted
likelihood of their relevance, and displayed to the end user in response to his or her query.
Critically, all of this complex activity occurs rapidly and automatically, without any direct
human intervention.
As users search for information on the Internet, they necessarily provide the searchengine with valuable information - the precise topic users arc interested in at that moment.
Although a user does not pay for the web search service, the user's focused inte est - orintent - is very valuable to advertisers, because users arc e ffectively identifying hcmselves
as potential customers through the content of their queries. For example, a business selling

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advcrtising:l The growth of the Internet has created entirely new business models that can
6take advantage of ways, unique to the Internet, to identify and reach potential customers withadvertising. 37 Among the reasons advertisers have shifted budget online is thel.gh degree oftracking possible and the quantifiable, superior return on investment. 38
Online advertising is primarily made up of display and search advertisin , althoughsome other types of advertising (e.g., contextual , re-targeted display, and social

edia

advertising) also have some presence. Display advertising typically consists ofcontaining graphics and other rich media appearing on white space on a web pa e. Searchadvertising consists of text ads (displayed on the right-hand side of the search rasults page, atthe top of the page above the search results, and below the search results) matched to specifickeyword queries entered into the search engine by the user.
Search advertising makes up the bulk of online advertiser spend, primar' ly because
advertisers believe that search advertising provides unprecedented precision in i entifying
potential customers, measurabi lity, and the highest return on investment. 39 Simr ly put, "it is
the most effective marketing ever."40 Search advertising is highly valued by ad ertisers
because they learn crucial information about the user from the query alone: the] learn thatthe user is interested in a particular subject, right now.41 Thus, search adve11isi g is a highly
effective method of reaching users who arc interested in learning about or purc1asing
products. Search advertising is often called "direct response•· advertising, as it ' is intended
to elicit a response from a consumer, such as the purchase of a product or signing up for aservice.'A2
With pure djsplay advertising, all the advertiser knows about the user is hat he or she
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the user leave to go to a dedicated search website like Google or Bing; the search provider
picks up incremental search volume, as some users will not bother to run a search if theyIbave to leave the publisher's website to do it; and, most importantly, the resulti g searchtraffic can be monetized through search advertising in the same way as a search run on
Google or Bing.
The process works very similarly to a web search conducted on Google. Google
receives queries from the third-party website, evaluates them against a subset o its web
index, and then de livers web search results to the user on the third-party publisl er's
website.

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As with web search on Google.com, the consumer pays for none oft ese services.

Instead, pub I is hers pay Google for syndicated search either on a cost-per-user-query basis(for example, $.95 per 1,000 queries), or by accepting search advertisements from Google
and splitting the revenues from the se-arch advertisements run on the publisher's website.
The resulting revenue sharing arrangement is often referred to as the "trafficac~uisition cost"(or ''TAC").
Publishers arc generally able to select the web search and search advertisement
syndication services separately or together. Thus, publishers that do not wish to offer web
search generally (or Google's web search, specifically) can- and do- participa e in
Google's AdScnsc program to receive search advertisements without the corres onding web
search functionality.50

4.

Mobile Searcb 51

In recent years, the focus of search (and related advertising) has begun s jfting fromthe traditional desktop model to the rapidly emerging- and lucrative- frontier f mobile (or"smartphone") devices. At the forefront of this shift is Google's mobile operating system,

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In addition, click data (the website links on which a user actually clicks) is importantfor evaluating the quality of the search results page. As Google' s former chief of search
quality Udi Manber testified:
The ranking itself is affected by the click data. If we discover th t, for aparticular query, hypothetically, 80 percent or people click on R ult No. 2
and only l 0 percent click on Result No. I, after a while we fi~urprobably Result 2 is the one people want. So we'll switch it.
Testimony from Scrgcy Brin and Eric Schmidt confirms that click data is impo

nt for many

purposes, including, most importantly, providing ''feedback" on whether Googl 's searchalgorithms are offering its users high quality results. 58
Finally, search providers run experiments on large volumes of users. Search engines
conduct experiments on everything from ranking of search results to user interface anddesign decisions. 59 As Larry Page and Sergey Brin stated in their 2005 annual letter toshareholders:
Our teams are more productive once they get real users and feed ack. We
have learned that the best way to make something great is to actu lly launch itto the public. T hat's why we have the Google Labs and 'beta' la els- thesearc our experiments. 60
Multiple experiments are conducted simullaneously. 61 The more search users l~ere are at any
given time, the more experiments can be run, the faster they can be completed, td the more
improvements that can be made to the search algorithms. 62 According to Micro oft chief
economist (and Harvard professor) Susan Athey, Microsoft's search quality tea 1 is greatly
hampered by having insufficient search volume to conduct expcrimcnts.63
With improved search quality, particularly for ·'tail" queries, Bing assert that it will
be better positioned to compete with Google for users (and, thus, for advertisers , and so to

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and - importantly - also serves to attract more advertisers, that, generally spe
the ir advertisements to reach as broad an audience as possible. 74
Jn sum, Bing asserts that a larger volume of advertisements- and the im roved
coverage, quality, conversion rates, and revenues that come from such an increa 'ed volumewi ll allow it to better compete with Google for both advertisers and website pub ishers, andso to constrain the exercise by Google of monopoly power.

3.

The Scale C urve

Googlc acknowledges the importance of scale in the abstract. Google documents are
replete with references to the "virtuous cycle" among users, advertisers, and publishers; 75
and testimony from Google executives confirms the continuing viability of the "cycle." 76
However, Google argues that, while scale matters, it only matters up to a point, beyond
which there arc substantially "diminishing returns" to increasing volumes of both queries andadvertisements. 77 For example, Sergey Brio testified that a ''rough rule of thumb" might be,
as query volume doubles, a search engine might expect to see a one percent incr ase inquality.7l!
Googl.e argues that Bing's query and advertiser volume have passed the oint at
which scale should - or would - matter significantly to Microsofi, and that any volume gains

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made by Bing would yield minimal improvements in either Bing's search quality or its
monetization ability.

79

Microsoft does not dispute the notion that there are generally

diminishing returns to scale. 80 The main bone of contention between Google and Microsoft
is where on this scale curve Microsoft currently operates. This is an important question, butI

one which evades easy answers. This is, in part, because neither party can identify a fixed
number of queries or ads that constitutes the " minimum efficient" point of

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platform, it calculated that Bing would receive a 20 percent boost in revenue per search(''R PS") on the basis ofYahoo!'s additional volume.89 Although Bing's RPS (andconsequently, RPM) has improved with the addition of Yahoo! query and ads v lume, it has
not improved as substantially as Microsoft initially forccast.90
In this investigation, the question of how and why scale matters has tak n a
prominent position in several allegations advanced by complainants: speciticall , whether the
conduct under review denies Googlc's main competitor - Microsoft- the scale t needs tosuccessfully constrain Googlc's monopoly over search and search advertising.

hese

allegations arc discussed in detail in the following section.

D.

GOOGLE'S SUSPECT CONDUCT

Staff has conducted a comprehensive investigation into several areas of alleged
anticompctitive conduct. Below, we lay out four of the five main areas of Staff's
investigation. 91

1.

Google's Preferencing of Googlc Vertical Properties 'fitbin Its
Search Engine Results Page ("SERP")
1

Staff has investigated whether Google is unlawfully preferencing its own verticalproperties, wh ile demoting rival vertical properties. in order to maintain, preser e, or enhance
Googlc's monopoly power in the markets for search and search advertising. Co plainants
allege that Google's conduct is anticompetitivc because it forecloses alternative searchplatforms that might operate to constrain Google's dominance in search and sea chadvertising. Although it is a close call, we do not recommend that the Commis ·an issue acomplaint against Googlc for this conduct.

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search capabilities within specific commercial categories, and thus might cause users to shift
their searches in those categories away from Google's general web search platfi rm. As users
moved to vertical search websites, those websites could, in tum, become more ttractive
vehicles for advertisers, thus resulting in potentially significant revenue losses t Google. In

sh011:
Vertical search is of tremendous strategic importance to Google. Otherwise
the Jisk is that Google is the go-to place for finding information nly in thecases where there is sufficiently low monetization potential that o niche
101
vertical search competitor has fi lled the space with a better alter ative.
A 2008 presentation, entitled "Online Advertising Challenges: Rise oft e
Aggregators," further highlights the problems faced by Google with regard to the leading
UK-based finance vertical website, MoneySupem1arkct:
Issue 1. Consumers migrating to MoneySupermarket. Driver: Generalsearch engines not solving consumer queries as well as specialized
vertical search.... Consequence: Increasing proportion of visitors
going directly to MoneySupermarket. . . . Google Implication: Loss ofquery volumes.

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Issue 2: MoneySupermarket has better advertiser proposition. Dp ver:MoneySupermarkct offers cheaper, lower risk (CPA-based) lead toadvertisers. Google Implication: Advertiser pull: Direct advertis
switch spend to MoneySupcrmarket/othcr channels. 102
Pa1tly in response to this new competitive threat - the "rise of aggrcgato " - Google
decided to hone in on certain "key" ve1tical search areas (shopping, local, finan e, and travel)
and invest in developing existing - or creating new- vertical properties. 103 In e rtain areas
where Google already bad existing vertical properties, such as shopping and local, 104 Googlc
saw a critical need to invest further and take measures to increase user traffic toproperties. 105 In potentially lucrative areas where strong verticals already exi

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and against its natural search results, because the web index and other indices all bad theirown ranking algorithms and scores. 114 Google referred to the difficulty of comparing theseranking scores as an "apples to oranges" problem. 115 Google did, however, frei uently
compare the quality of its vertical results to that of its competitors using others oring
methods. 116
The verticals were initially placed in one of three locations: if Googled emed thevertical content to be highly relevant, it would go into position one, above then tural search
results; ifGoogle deemed the content somewhat relevant, it would go into posit on four (ormidway down the frrst page of natural search results); and ifGoogle deemed the content only
marginally relevant, it would go into position I 0 (or at the bottom of the first page of natural
search results). 117 In 2012, Google claims that it changed its algorithms to display Universal
Search results in any position on the SERP, depending on the same initial relevancy
screen. 118

next page.

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maximize the percentage of queries for which it displayed Universal Search results.

119

Evidence shows that Googlc sought to increase such "triggering" of Universal Search results
not only to provide users with the "right" answer to their queries, but also to dri e traffic toGoogle properties.

120

Google recognized that the frequen t display of its vertica properties on

the SERP was necessary to drive traffic to its properties, and thus, grow user sh rc in highly
commercial areas such as shopping and local. 121 Google continued to trigger U iversal
Search results frequently- and prominently - even when it detem1ined that sho 'ing such
results in the top position would "cannibalize" revenue from the top ads, as the ompany was
willing to lose short-term revenue with the long-term goal of retaining and growing verticalsearch query share. 122

Second, Google embellished its Universal Search results with photos and other eyecatching interfaces, recognizing that these design choices would help steer users to Googlc's
vertical properties. 123 Third party studies show the substantial difference in traffic withprominent, !:,TTaphical user interfaces. 124 These "rich" user interfaces are not available tocompeting vertical webs ites. 125 Moreover, Google 's Universal Search results often were notlabeled as being provided by Google affiliated services, but were integrated dire tly into thesearch results.

Third, Googlc displayed its Universal Search results at or ncar the top oThis desirable positioning ofGoogle's Universal Search results pushes all other eb search
results down, which significantly decreases click-through to the websitcs displa ed in
Google 's natural search results. 127 Google displays its Universal Search results n theseprominent positions without comparing the quality ofGoogle's vertical content o that of its
vertical competitors, 128 or evaluating whether users would prefer to see Google's content or

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Although Google tracks user click-through rates (and relies on such click-throughdata to improve its web search results in a number of ways, see supra p. 14), Google has notrelied on click-through data to rank its Universal Search results against other web search
results.

134

According to Marissa Mayer, Google did not use click-through rates to determine

the position of the Universal Search properties because it would take too long to move up on
tbc SERP on the basis of user click-through ratc. 135
Rather than comparing its content with that of competitors, Google used lhe
occurrence of competing vertical websites in its natural search results to automa~ically boost
the ranking of its own vertical properties above that of competitors. 136 For exam~lc, where
Google's algorithms deemed a comparison shopping website relevant to a user's query,
Google automatically returned Google Product Search - above any rival comparison
shopping websites. 137 Similarly, when Google's algorithms deemed local websites, such as
Yelp or CityScarcb, relevant to a user's query, Google automatically returned Google Local
at the top ofthe SERP. 138
Google also dedicates space at the top of its SERP to its social network

rtical,Google Plus. Google provides links to Googlc Plus pages that might be rclevan to a queryon the right-hand side of the SERP, and "auto suggests" Google Plus pages for user queries,
regardless of which social media sites are the most relevant, comprehensive, or ave thefreshest results in response to any given user query. 139 Google also displays prolincnt links
to Google Plus pages when users make navigational queries to many companies' wcbsitcs:
For example, in response to the navigational query "Dell" a user is presented with the SERP
shown on the next page.

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(offers),t or "Sponsored" (the new paid Google Shopping ads), and other tijes provided
45

146

no label (flight search). 147 In May 20 12, Google announced that its shopping pr pcrty,
Google Product Search- which will now be known as Google Shopping - will betransitioned to a paid listing model in the fall of2012. 148 Under the paid model, Lcrchants
will pay Google directly to appear in Google Shopping, and Google will no long r include
product listings for merchants who do not pay for placement. 149
Google's dedicated ads do not compete with other ads through Google'sdWordsauction for placement on Google's SERP. Instead, they enjoy automatic placemjnt in themost effective advertising places on the SERP, usually above the natural search ~esults. 150
Google also does not compare the quality of itc.; own ads to the quality of competitors' adsthat provide the same vertical service. For example, although it displays its flight search
above any nat un-~1 search results for flight-booking sites, Google does not provide tbe mostflight options for travclcrs. 151 As with Google's Universal Search results, Google's rich userinterfaces for its ads-based vertical offerings, which are unavailable to competitors, lead tohigher clicks for Google 's ads. 152e.

. Google's Demotion of Competing Vertical Web ites

While Google embarked on a multi-year strategy of developing and shoWI asing its
own vertical properties, Google simultaneously adopted a strdtcgy of demoting, or refusing todisplay, links to cettain vertical websites in highly commercial categories. AccoLing toGooglc, the company has targeted for demotion vertical websites that have "little or no
original content," or that contain "duplicative'' content. 153
Similarly, Google has identified comparison shopping websites as undesirable tousers, and has developed several algorithms to demote these websites on its

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algorithms that demote sites that "scrape a large percentage of their content from othersites." 163 These algorithms are not applied to Google vertical sites.
Google's vertical properties would rank poorly if they were crawled and rdexed by
Google because they have never been "engineered" for ranking by the search cntine. 164

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Unlike Google's vertical competitors, who expend considerable resources on op imizing theirwebsites in order to rank highly on Googlc' s SERP, Google docs not expend the time andresources to optimize its own vertical properties; it simply places them on the SERP.

f.

Effects of Google's SERP Changes on Vertical tvals

Vertical websites, such as comparison shopping and local websitcs, are h avily
dependent on Google's web search results to reach users. 165 Thus, Google is in the uniqueposition of bei ng able to " make or break any web-based busincss." 166
Google's prominent placement and display o[ its Universal Search properties,
combined with the demotion of certain vertical competitors in Google's natural search
results, has resulted in s ignificant loss of traffic to many competing vertical webjites. Data
from various comparison shopping and other competing websitcs shows drops in traffic that
correlate to changes implemented by Googlc to its SERP. 167 Google's internal d ta eonfinns
the impact, showing that Google anticipated significant traffic loss to certain cate ories ofve11ieal wcbsites when it implemented many of the algorithmic changes described above. 168
While Coogle's changes to its SERP led to a significant decrease in traffi for thewebsites of many vertical competitors, Googlc's prominent showcasing of its vertica lpropctties led to gains in user share for its own properties. 169 For example, Google's
inclusion ofGoogle Product Search as a Universal Search result took Google Product Searchfrom a rank of seventh in page views in July 2007 to the number one rank by Jul 2008. 170

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Google considered several options for obtaining information for display n its own
vertical prope1ties: developing its own content; obtaining licenses from other co tent
creators; and obtaining content by crawling the world wide web (in the same wal>' that
Googlc crawls the world wide web for its general web index). Ultimately, Goo lc settled on
a combination of all three of these alternatives.
Much ofGoogle's vertical content is currently obtained through feeds fr m various
wcbsitcs, pursuant to free licenses from those sites for Google to use that data.

oogle'sstandard license agreement allows Google to usc third parties' data feeds for any purpose. 178
Many website publishers, such as Shopzilla, have agreed to these terms because they believe
they do not have the levemge to negotiate with Googlc regarding tbc terms of their licenses,
because they want the benefits of appearing in Google's vertica1. 179
l~on to the feeds it receives, Google 's use of crawled content is .Ervasive.

Indeed, the content of any website that Google crawls for indexing purposes (for Google's
web search) may be used by Google for any of its vertical search properties in a umber ofdifferent ways. For example, Google has often included "snippets" (or excerpts) of userl also uses
reviews from local or shopping properties on its own vertical properties. Googlt
the rankings of various businesses or products to aid its own determination rega ing theorder in which those businesses or products should be ranked within its own ver ·cal
properties. For example, Google calculates the popularity of a product for the purpose of
ranking it in Google Product Search based on three factors: (I) Amazon Sales Rank; (2) the
number of merchants offering the product for sale; and (3) the quality of those merchants. 180

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Because Amazon did not provide competitively sensitive information such as A azon Sales

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For Googlc Local, Google needed photos, addresses, hours, and reviews. Google
originally obtained this content through licenses with the.<>e websites. In late 2006, Google
decided that it wanted more control over its local content. 186 Google recognized that review
content, in particular, was "critical to w inning in local search," but that Google had an"unhealthy dependency" on Yelp for much of its review content. 187 Google feared that its

heavy reliance on Yelp content, along with Yelp's success in certain categories 1nd
geographies, could lead Yelp and other local information websites to siphon use s' local
queries away from Google.

188

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In order to acquire direct access to a large storehouse of user content, maragcrs"""
working on Goo le Local attem ted to convince Google executives to purchase Yelp, buttheywere rebuffed.
..:.,___----

189

Instead, Google decided to launch a redesigned version of Google

Maps, in which users could submit reviews directly to Google. 190
Googlc understood that the existence of a critical mass of user reviews (like thoseusers bad already submitted to websites like Yclp and Trip Advisor) was import nt in
attracting additional user reviews.

191

Google also knew that its partners- such a, Yelp andTrip Advisor - wou ld be unhappy about Googlc 's osc of their content to collect f oogle 's
own conl'ent.

192

Indeed, upon learning of Google's intent to collect its own revi ws and todevelop this now-directly competing properly, Yelp discontinued its data feed tol Google, andasked Googlc to remove all Yelp content that Google fea tured on Google Loca1. ]93
move - and did remove - Yelp's content. However,after offering its own review site for more than two years, Google recognized that it had
failed to develop a community of users- and thus, the critical mass of user reviJ s- that itneeded to sustain its local produet.

194

In an attempt to gain quick access to a lar~e storehouse

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included in Google Places or not have their property appear in Google web search results at
al1?

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Critically, for Google, this meant that it could now force local websites- that needed

access to Google's web search to reach users - to accede to Google's use ofthe large
storehouse of reviews that Google's rivals had built in order to develop its own user base.204
Indeed, G9 omost stmu taneous y aunched a new rcvicws-collectiof product-

Hotpot - to (again) try to solicit original user reviews, this time seeding it w ith ~eviews fromthi rd-party websites with no attribution. 205 Yelp, TripAdvisor, and CitySearch a 1 complained
to Google?

06

All of these parties sought removal of their user review content from Google

Placcs/Hotpot, as well as the removal oftheir reviews from Coogle's aggregated review
count on the main SERP? 07 This time, however, Googlc told each company that ifYelp,
TripAdvisor, and CityScarch wanted to have their content removed from Google
PlacesfHotpot, they would have to exclude their websitcs from being crawled by Google
altogether, which meant complete exclusion from Google's SERP. 208 This was rot
ccssary - tt was JUSt a po tcy decision by Google. 209
Like many other vertical websitcs, Yelp, TripAdvisor, and Citysearch reJjed heavily

I

on Google 's web search results to reach users, and thus could not risk removal lom Google's
web search index?

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Instead, they each attempted to negotiate with Google, seling removalfrom Coogle Local (without simultaneous removal from Google's web search r suits), or atleast a user interface that provided sufficient attribution o f their content.211
Facing what seemed to be an ali-or-nothing choice, Yelp also began widely .
publicizing Google's refusal to remove Yelp content fro m Google Local (including filing acomplaint with the Commission), and ultimately, in July 2011, sent Googte a Cease andDesist letter.

212

In its letter, Yelp clearly indicated that it expected to remain in Google web

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Google had already collected sufficient reviews by bootstrapping its review collection on thedisplay of other websites' reviews. It no longer needed to display third-party reviews,
particularly while under investigation for this precise conduct.

b.

The "Shopping" Story

Much ofGoogle Product Search content is obtained through feeds from arious
websitcs with corresponding license agreements, from crawls, and to a lesser ex ent, bygenerating its own contcnt.220 As Google sought to develop a stronger shopping offering
beginn ing around 2006, Google recognized the need to improve its data in sever l areas.
Googlc decided to supplement its feeds with additional merchant review , productreviews, and product listings it could get from crawls, particularly from Amazon. 221 Amazon
had a license agreement with Google starting in June 2009. Pursuant to this agreement,
Amazon provided Googlc with only a limited data feed of information about its products, andsought to limit how Google used the data, because Amazon has always feared that Google
would usc Amazon's comprehensive product catalogue and original review content todevelop a strong competitor in shopping. 222
Shortly thereafter, claiming that Amazon's data feed to Google Product hoppi ng was
too limited, Google decided not to rely on the feed, but instead, crawled Amazo 's website toscrape the much more detailed product information - including star ratings andreviews. 223 Googlc also relied on Amazon's web pages that indicate the ranking of products
within Amazon. Google used- and continues to usc - this information to determine theorder in which to rank products within Google Product Search.
In August2010, around the same time that Yelp requested that Google r

ove Yelp's

content from Google Local, Amazon requested that Googlc stop using Amazon' crawled

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comprchensive? Google also attempted to pay a company to generate a new hierarchy, but
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this was taking a long time, and also was not sufficiently comprehensive.232
Ultimately, Google decided to cra\vl Amazon's product web pages, read mbedded
information on Amazon's pages indicating Amazon's classification system, and to use that
infom1ation to create Google's classification.233 This was critical to Googlc bec~use Froogle
had failed partly due to Google 's inability to accurately classify the millions of roducts fromfeeds and crawls, and to return correct search results. 234 Amazon considers its c assification
system an important competitive advantage that it spends tremendous resources o develop,
and docs not approve ofGoogle's use of Amazon 's system to develop its O\V'll .rs.>rWith Google's migration to a paid shopping modcl,236 Google has stated that it will
only use reviews from companies that provide licensed feeds of their content. lt appears,
however, that Google may continue to crawl, and rely upon, rivals ' product classifications togenerate its own, and on rivals' ran kings to determine raukings of products with'n Google
Shopping.

c.

Effects of Google's "Scraping" on Vertical Riv~ls

Because Google scraped content from these vertical websites over an

ex~ended periodof time, it is difficult to point to declines in traffic that arc specifically attributable toGoogle's conduct. However, the natural and probable effect of Googlc 's condur is todiminish the incentives of companies like Yelp, TripAdvisor, CitySearch, and A~azon toinvest in, and to develop, new and innovative content, as the companies cannot fully capture
the benefits of their innovations. 237

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Initial ly, Google offered advertisers two ways to access the AdWords system andmanage their campaigns: the AdWords Front End and the AdWords Editor. The Front End isa web page that advertisers could log into and manage their campaigns. The Editor is a
program advertisers can download. It allows advertisers to download campaign inforn1ationfrom Googlc, make bulk changes offline, and then upload the changes back into AdWords.

Thesetwo access points eventuall y proved to be insufficient because largeadve~isers andagenc1es were taxmg the ex1stmg system. They would access the system and mlke so manychanges to their campaigns that the system's capacity would be exceeded,causi~g it to be

unavailable temporarily or even to crash. 240
In response, in 2004, Google introduced a third method for accessing the AdWords
system: the AdWords APJ. The A PI (application programm ing interface) allows advertisers
and agencies direct programmatic access to the AdWords platform. The API contains a setof specifications that allows advertisers and agencies to develop their own software programs
to interact with the API and allow them to set up and optimize their ad campaigns. APls arc
now an essential feature of campaign management for advertisers and agencies ran aging

multiple accounts." ' All three major search advertising platforms (Google, Mi~osofi, and242Yahoo!)

have APis that allow th1s dnect, automated mteract1on w1th ad platform featw-es.

Google anticipated that the API would have several benefits, inctudjng:fl) reduced

Google operating expenses (Google personnel having to provide manual proces~ing andtroubleshooting for large bulk sheets); (2) increased advertiser spend due to reduced
advertiser operating costs; and (3) rapid development of advertiser and third party tools
supporting AdWords campaigns 243

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Amazon and eBay, can develop- and have developed - their own
simultaneously manage campaigns across platforms? 48 The advertisers affected are those
whose campaign volumes are large enough to benefit from using th e AdWords API, but too
small to justify devoting the necessary resources to develop in-house the software andexpertise to manage multiple search network ad campaigns.
c.

Effects of the Restrictive C onditionsi.

Effects on Advertisers and Search Engi e Marketers("SEMs")249
As noted above, the immediate effect of the restrictive conditions has been to preventthe development and marketing of tools that would allow ad vertisers to manage ad
campaigns on multiple search advertising networks simultan eously. Google routinely audits
its API clients to determine compliance with the restrictive cond itions. On several occasions,
Google bas required SEMs to remove functionality t hat would facilitate simultaneous
management of search advertising campaigns.250 Other SEMs have stated that, but for the
restrictive conditions, they too would develop and offer such functionality. 251

ey would

also be freer to innovate the tools they offer based on their clients' demands. 252 Google
anticipated that the restrictive conditions wou ld e liminate SEM incentives to iru ovate.253
Many advertisers have said they would be interested in buying a tool thhoming functionality.

254

bad multi-

Such functionality would be attractive to advertisers because it

would reduce the costs of managing multiple ad campaigns, giving advertisers access to
add itional advertising opportunities on multiple search advertising networks wi~h minimal
additional investment of time. The advertisers who would bene fit from such a tool appear tobe the medium-sized advertisers, whose advertising budgets are too small to jus ity hiring a

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ii.

Effects on Competitors

lt seems likely that the removal ofGoogle's API restrictions would increase theamount of advertising spend directed towards search networks that compete with Google.
The rationale is that many advertisers would be w illing to advertise on Bing or Yahoo! if
they could do so w ithout incurring significant transaction costs. As noted above, optimizing
a search advertising campaign is time-intensive. lt may not be worthwhile investjng such
efforts for additional, smaller search networks. Microsoft contends that if management toolsthat allowed advertisers to optimize their campaigns on multiple search networks
simultaneously were available, many more advertisers would choose to advertise on the
networks that comp ete with Google.
Data on advertiser " multi-homing" may show some of the effects of the restrictive
conditions. ''Multi~homing" refers to advertisers that advertise on multiple search networks.
The data indicate that nearly all of the largest advertisers multi- home, but the percentage ofmulti-homing declines as the advertisers ' spend decreases. According to a 201 1 study byI

Microsoft, which divided the advertiser base into deciles based on total number of clicks(such that the largest nine advertisers comprise a decile - or 10 pen;ent of total cl cks - unto
themselves), the distribution of multi-homing was as follows: 262
Deci leAdvertisers (from smallest %multi-homing'<> !
to largest)

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208980( 31~ 8 )

2

18346

'~

3

4876

83.0

4

1736

90.8

---~

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basis, the same advertisers optimize their Microsoft campaigns far less frequently, on a
weekly or bi-weekly basis. 266
Staff conducted a series of interviews o f randomly selected small adverti l ers to gather
their anecdotal perspective on these issues. These interviews strongly tend to su port thethesis that many small advertisers would extend their advertising to other search networks if
they had access to a cross-platfom1 optimization too l. Nearly all small advertise sinterviewed showed interest in such a too1. 267 They believed such a cross-platfo~m
optimization tool would be central to addressing their core constraints: time, sophistication,and money.

268

When these transaction costs are coupled with Bing's limited volume, somesmall advertisers refrain from using Bing altogether? 69 Furthermore, even those that do use
Bing may not be fully optimizing their Bing campaigns because the benefits of Bing's
limited user volume may not out\veigh the transaction costs associated with full
optimization. 270

d.

Internal Coogle Discussions Regarding tbe Restrictions

I ntemal Google documents support the notion that the removal of the res rictions

would increase advertiser spend on competing networks. In 2007, when eonside ing whether
to offer a cross-network management tool, an API product manager wrote (and director of
product management Richard Holden endorsed):If we otTer cross-network SEM in [Europe), we will give a significant boost to ourcompetitors. Most advertisers that I have talked to in [Europe] don't bother running
campaigns on [Microsoft] or Yahoo because the additional overhead needed to
manage these other networks outweighs the small amount of additional traffic. For
this reason, [Microsoft} and Yahoo still have a.fi·action of the advertisers that wehave in [Europe}, and they still have lower average CPAs [cost per acquisition}.271
This last point is significant. The success of Googlc's Ad Words auctions has ""rv•-·" to raise
the costs of advertising on Google. With more advertisers entering the AdW

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and the plans to improve DART Seareh.

274

However, a series of documents- documents

authored by Holden -explicitly link the two ideas.
In December 2008, Holden, senior vice-president of ad products Susan W ~ cicki, andothers met to discuss the issue. Of the meeting, Holden wrote:ij[O]ne debate we arc having is whether we should eliminate our A
requirement that AW [AdWords] featu res not be co-mingled with ompetitor
network featu res in SEM cross-network tools like DART Search. We are
advocating that we eliminate this requirement and that we build a uch more:;treamlined and efficient DART Search otTcring and let SEM tool rovidcr
competitors do the same. There was some debate about this, but 1 e
concluded that it is better.for customers and the indust1y as a who e to makethings more efficient and we will maximize our opportunity by mo ing
quickly and providing the most robust offering. 27

In February 2009, Holden wrote the executive summary for a DART Search productreview, in which he advocated that Googlc ·'alter the AdWords Ts&Cs to be less restrictive
and produce the leading cross-network toolset that increases advertiser/agency efficiency."
Such a move, he wrote, would "[r]educe friction in the search ads sales and management
process and grow the industry fastcr." 276 In April 2009, in light of evident disapproval from
Larry Page about the idea of removing the co-mingling restriction, Holden wrote: "We've
heard that and we will focus on building the product to be industry-leading and wm evaluate
il with him when it is done and then discuss co-mingling and enabling all to do it. '277
In September 2009, the API product manager again raised the possibility feliminating the restrictive conditions as a way to help DART Search, this time wi h the added
argument that DART Search was not able to compete effect ively against other SEM crossnetwork tools that might be violating those restrictive conditions.278 Before the i . ue wasrnised up the Ladder to Susan Wojcicki, the API product manager asked Richard 1 oldcn's
advice :

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advertising syndication (or "search intermediation"). We recommend that the Commission
issue a complaint against Google for this conduct.
a.

Publishers and Market Structure

The buyers of search and search advertising syndication ser vices are web ite
publishers. In effect, any website that has content that it would like to monetize ia ads is apotential buyer of syndication services. Whi lc there arc thousands of these webs· es, a
handful of the largest websites on the Internet account for the vast majority of sy dicatedsearch traffic and revenue. 285 Google served approximately 118 billion AdSense (search
syndication) queries in 201 1, but just 10 websites generated almost 80 percent of thattra flic. 286
The biggest customers for search and search advertising syndication services are ecommercc retailers (e.g., Amazon and eBay), traditional retailers with large associatedwebsites (Wal-Mart, Target, Best Buy), and Internet Service Providers ("TSPs"),2 7 which
operate their own web portals.288
Below this small group of very large publishers, there arc another roughly 25
companies with significant query volume. These mid-tier companies include ver ical ecommerce sites such as Kayak (travel), along with smaller retailers and smaller I Ps such as
EarthLink. None of these mid-tier companies generate even one percent ofGoogle's total
AdScnse query volume. Below these companies, publisher size drops off rapidly to wellunder 0.1 percent of Google's query volume. 289
The search provider pays the publisher (website) a percentage of the revenue
generated from user ad clicks on the publisher's website. ln the industry, these agreements
arc known as " revenue sharing" arrangements. The higher this percentage, the m re the

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domain related) advenising services. There are two main categories of AdSense agreements:
AFS (search), which provides search advertising to publishers, and AFC (content), which
provides contextual advertising to publishers. Staffs investigation has focused on Google's
AFS agreements.
Within the AFS category, there are two types of agreements: (i) Google erv1ce
Agreements ("GSAs"), which are individually negotiated agreements with large partners; and(ii) standard online contracts, which are non-negotiable and non-exclusive agreements thatany publisher can sign?96 Standard online agreements make up the bulk of Google's AFS
partners, but only a small portion ofAFS rcvcnucs. 297 The bulk of the revenues lc ome fromthe GSAs with Google's 10 largest partners, which collectively comprise almost 80 percent
ofGoogle's overall AFS query volume in 201 1.198 All ofGoogle's GSAs contain some formof exclusivity or "preferred placement" for Google, and the GSAs typically last from one tothree years. 299
Google's exclusive AFS agreements effectively prohibit the use of non-CSoogle searchand search advertising within the sites and pages designated in the agreement.300 Some
exclusive agreements cover all properties held by a publisher globally; other agr ements
provide for a property-by-property (or market-by-market) assignment. 30 1
By 2008, with its market presence clearly established, Googlc began to t11ligrate awayfrom outright exclusivity in all of its agreements toward what Googlc terms "preferredplacement" in many of its agreements.302 In essence, the "preferred placement" provision
requires the publisher to display three Google ads or the same number of ads the publisher
acquires from any competitor (whichever is greater)~ that Google's ads be displayed in an

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The customers generally confirmed Microsoft's claim that Bing's search syndicationo~fer ing is inferior, at least in part, because Microsoft's network of advertisers is smaller than

Google's. With a significantly larger advertiser base, Googlc is more likely to have a
relevant, high-quality advertisement for any given query, which greatly improves its
monetization rate relative to Microsoft. 307
A smaller publisher reported that, essentially, the only websites exclusiv ly using
Bing's search syndication service today aTe those that have been kicked out ofGoogle's
syndication network for violating its tenns of service. 308 While we know from otherinterviews that this comment is an exaggeration, it does capture the general tcno Iof thecomments we received about the relative quality of Microsoft's search and search advertising
syndication product.

/

Many publishers reported that M icrosoft was not aggressively trying to win their
syndication business. One mid-tier publ isher stated that Microsoft did not even return its
inquiry calls during the publisher's last contract renewa l discussions with Google.309 A
Microsoft executive acknowledged that Bing needs a larger portfolio of advertisers in orderto present a competitive offering to publishers, and so the company has not been ocused on
wi nn ing new search syndication business .310
Another common theme we heard from many (but not all) of the publishJs is that
serving advertising is a relatively minor part of their business and not a significant strategic
focus for them. For example, Wal-Mart operates its website principally as an extension to its
retail operations (letting Wal-Mart customers buy products either in-store or from the website

at their preference).

311

Best Buy's principal goal for its website is to be the provider ofpresale information, as 60 percent of its customers do online research before coming to the

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reductions in their AdSense revenue share percentage as large enough to justify shifting theirbusiness to Bing or to begin serving more display advertisements instead of search ads. 321

Publishers ' Views of Exclusivity Provisions

ii.

When asked whether their AdSense contract with Google was exclusive, thepublishers gave widely varied answers. A number of the large publishers reporter that their
AdSensc contract with Google was exclusive,322 but some reported that their Adrnse
contracts were not exclusive.

323

Most of the publ ishcrs that reported exclusivity ~rovisions

did not complain to us about them.
Staff s interviews did identify a fairly small, but significant, group of publishers thatwere deeply concerned by the exclusivity provisions in their Google AdSense agreements.
All of these customers view search and search advertis ing syndication income as a
substantial part of their business, and all have the technical sophistication to integrate
multiple suppliers into their on-line properties. W e summarize these concerns below.

eBay. eBay is Google's largest search and search advertising syndication partner,
accounting for just over 27 percent of the syndicated U.S. queries answered by G ogle in
20 I l.

324

Section 14 of eBay' s AdSense agreement states that the agreement is n t

exclusive.

325

However, the contract requires preferential treatment for Googlc A •Sense ads,

which eBay has characterized as equivalent to exclusivity. 326 The preferential treatment
terms include requirements that eBay show as many Googlc AdSense ads on each page as
third-party advertisements, that no third party advcttiscmcnts appear above the Google
AdSense advertisements, that Google AdSense advertisements cannot be interspersed withthird party advertisements, and that Googlc AdScnsc advertisements cannot be lessprominently displayed than third parry advertisements.327

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because it would have such poor placement on the NexTag site due to the Google contract
restrictions.336

Business.com. Business.com is a " B2B" lead generation/vertical site. In effect, thesite marries commercial customers looking for products (such as business phone systems)with providers ofthose products.337 Busincss.com is several orders ofmagnitud smaller
than the other complainants, barely making it onto a list of the lop 60 providers or AdSense
query volume. Busines~.com reports that it has an exclusive AdSense agreement with
Googlc.

338

This agreement materially limits how Business.com can design its web pages. If

Business.com were relieved from its exclusive arrangement, it would test Bi11g and Yahoo!
by product category, and place their advertisements in a more prominent position in thosecategories where their perfonnancc warrantcd. 339 The company would also likely takeadvertisements from both Google and BingNahoo! , and show them on the same page, withplacement dictated by relative performance in each category ? 40 Loosening up Googlc's
exclusivity restrictions would allow Business.com to improve its revenue, and also allow it to
introduce some new features that would make the site more accessible and user-Tendly.

341

Amazon. Amazon is the world's largest c-commcrcc sitc342 and the seco1d largest
AFS customer after eBay. On a worldwide basis, Amazon earns roughly $ 175 m Ilion fromsearch syndication services, with $169 million of that total coming from Google's AdSense
search product.

343

Amazon does not have an exclusive agreement with Googlc, and actually

splits its inventory among Google, Bing, and Yahoo! .3-14 However, Amazon finds that the
Bing and Yahoo! 's advertisements monetize at about 46 percent the rate of Googie's
advcrtiscments.345 Because of the very large monetization gap, Amazon can only afford touse B ing and Yahoo! for a very small percentage of its total search syndication n~eds.

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during the negotiation period wanted an exclusive arrangement.

358

Ultimately, Google'sofferi ng was the most lucrative, and lAC re-signed with Googlc. 359
However, lAC expressed concern about Google's requirement of exclusivity for
subsidiary properties, such as local website CityGrid, that wanted to explore "mi -andmatch" options with other search advertising providers. Indeed, in 2008, lAC de lined to opt
CityGrid into its larger exclusive agreement, attempting to forge an alternative ro 1te withother search advertising providers (including CityGrid's own ad network). Ultir ately,
however, CityGrid determined that it could not completely replace Google's syn~ication
network, even with a patchwork of other providers. Since then, CityGrid has been forced to"opt in" to lAC's larger exclusive agreement. Although CityGrid wants the option of using
other networks (including its own), and supplementing those ads with Googlc ads, it cannot
do so under lAC's existing agreement with Google. More generally, lAC expressed concern
about the lack of competition in search and search advertising syndication because there are
no good substitutes for search advertising. 360
While lAC initially seemed supportive of the story we heard from the oth r
concerned publishers, during a recent follow-up call, lAC's tone changed substa tially. Oneof the key complainants on the initial call was the president of lAC subsidiary Ci Grid.
That executive has since left lAC, and our more recent call was with another exequtive, who
was in charge of business development for lAC. This executive was far less sanguine as tolAC 's likelihood of splitting their business in the absence of exclusivity. He noted that,while he was also concerned about the lack of competition in the market, he could not see
moving incremental traffic to Bing or other search advertising providers unless themonetization gap narrowed significantly. The departure of the key executive with the closest

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An attempted monopolization claim requires a showing that (i) "the defendant has

engaged in predatory or anticomperitive cooduct" with (ii) "a speci fic intent to t onopolize"and (iii) a dangerous probability of achieving or maintaining monopoly power. 3 5

A.

GOOGLE HAS MONOPOLY POWER IN RELEVANT M1 RKETS"A fi rm is a monopolist if it can profitably raise prices substantially abo e thecompetitive level. .. . [M]onopoly power may be inferred from a firm's posses ion of adominant share of a relevant market that is protected by entry barriers." 366 Goog le hasmonopoly power in one or more properly defined markets.
I.

Relevant Markets and Market Shares

A properly defined antitrust market consists of ''any grouping of sales whose sellers,
if unified by a hypothetical cartel or merger, could profitably raise prices significantly above
the competitive level." 367 Typically, a court examines "such practical indicia as industry or
public recognition o f the submarket as a separate economic entity, the product 's peculiar
characteristics and uses, un ique production fa cilities, d istinct customers, distinct prices,sensitivity to price changes, and specialized vendors."368
Staff has identitied three relevant antitmst markets.

a.

Horizontal Search

Horizontal, algori thmic web search (hereafter "horizontal search") likely! constitutes aproperly defined relevant market. As discussed earl ier, horizontal search engines, such as
Google, attempt to cover the content of the Internet as widely as possible, and are specificallydesigned to return a comprehensive list of search results on any topic. By contrast, "vertical''search engines focus on more narrowly-defined categories of content, such as product

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words, to the extent vertical wcbsites compete with horizontal search providers 'vithin theirlimited areas of competence, nothing prohibits price discrimination between thdse narrowareas and the broader web.
Even in the narrow areas where vertical websites have subject matter co petence,
they face challenges in competing effectively with horizontal search providers. This isbecause comprehensive coverage of all topic areas appears to be a very importa t driver ofdemand, even to websites focusing on specific topic areas. The abi lity to offer
comprehensive search results was characterized as "fundamental" b_y Google's former CEO,
Eric Schmidt. 372 Schmidt explained that the company needs to build brand equity with its
customers by providing consistently good results regardless of the content of the query, andthat strong results across-the-board lead to specifi c queries in commercial search:
So if you, for example, are an academic researcher and you use Google 30
times for your academics, then perhaps you ' ll want to buy a camera ... So longas the product is very, very, very, very good, people will keep comingback ... The general product then creates the brand, creates demand and soforth. Then occasionally, these ads get clicked on.313
In effect, users are habituated into using Google for all their queries because of its
comprehensive scope, and so they may be more likely to tum to Google when they havecommercial queries, instead of starting at a vertical website. Schmidt's testimo?y iscorroborated by the representations of several of the vertical search firms, who note tJ1at theyarc dependent on horizontal search providers for significant amounts of their traffic, becauseeven many vetiical search users tend to begin their search with a query on Google, Bing orYahoo!. 314
When asked to identify his competitors in web search, Schmidt did not mention any
vertical property: "[A]s far as I can tell, the industry has two main horizontal

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properly define the scope of the geographic market for web search. Our investigation has
uncovered no basis on which to deviate from this conclusion. 319
Google is clearly the dominant provider of "general search" services in tt c UnitedStates. Google's own sites have a 66.7 percent share of the market as of May 20 2,
according to ComScore, a leading industry measurement finn. 31l0 Google also povides
search services to two small, formerly independent web search operators (Ask.com

381

and

AOL382), which collectively account for another 4.6 percent of the relevant marbt according
to ComScore.m ln sum, the total Google-powered query share in the United Sta es is 71.3
percent, according to ComScore. 384
The balance of this market is controlled by the Microsoft/Yahoo! search alliance.
Yahoo! holds approximately 15 percent of the market, and Bing (owned by M icrosoft), holds
approximately 14 percent.385 As noted earlier, since 2009. Microsoft and Yahoo! have been
partners in what essentially amounts to a long-tem1 joint venture for search, where Microsoft
powers the algorithmic search results for both Yahoo! and Bing, while Yahoo! handles the
direct relationships with large advertisers for the combined scrvicc. 386 Advertisers that wantto purchase search advertising on Yahoo! or Bing cannot buy access to these pro erties
separately, but rather must purchase advertisements that run on both sites simultreously. 387
So, in effect, there are just two providers of horizontal search: Google and the BTg!Yahoo!
search alliance.

Firm

ComScore Market Share, May 2012

Google71%

Bing/Yahoo

29%

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are typically more interested in developing user interest- or "branding"- than in eliciting a
direct response from the consumer, whereas the primary attraction of search advertising is its
propensity to generate direct responses. 394 As Hal Varian, Google's chief ccono rust put it,"[o]nc way to think about the difference between search and display/brand adve ising is to
say that 'search ads help satisfy demand' while 'brand advertising helps to crcat
demand." 395
The different manners in which disp lay and search advertising arc priced ·s consistent
with their disti nct overarching goals. Search advertisements - whose main goal is to directly
drive user purchases- are priced on a "cost-per-cl ick" basis (i.e., an advertiser ooly pays if auser clicks on the ad). Conversely, display advertisements - whose main goal is to sparkinterest and drive awareness- are priced based on the number of times the ad is displayed.
Display and search advertising arc also separately managed, measured, and tracked
internally at Google. 396 Similarly, for advertisers and agencies, display and search are
different eategories.397 The ad types require different creative, targets, budgets, ~dtracking.

398

Most advertisers spend in both categories, as they consider display a d search

advcttising to be complements.399
Evidence suggests tbat search and display arc indeed complements rather thansubstitutes. Google has observed steep click declines when advertisers have atte~pted toshift budget to display advertising. For example, when automobile manufacturer Chevrolet
decided to suspend its search advertising campaign for two weeks, and rely on display
advertising alone, it lost 30 percent of total clicks on irs wcbsitc.

400

In recent years there has been some perceived convergence between thedisplay and search advertising.

401

With varying degrees of success, both display nd search

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ofadvertising.

414

However, a minority of advertising agencies and advertisers sa·d theywould move advertising dollars away from search advertising in response to a SSNIP.

415

Google's internal documents and testimony confirm that there is currcntl~ no viable
substitute for search advertising. Both Ad Words vice-president of product manakement NickFox and chief economist Hal Varian have previously stated that search advertis+ spend
docs not come at the expense of other advertising dollars.'" And former GoogleiCEO Eric
Schmidt has twice testified unequivocally- in both this investigation and in a priorDepa1tment of Justice investigation- that search advertising is ·'the most effective tool forreaching the customers that arc actually prepared to buy,"41 7 and "has the best ROI of any
advertising as best we can determine.',... 18
Both the Commission and the Department of Justice have previously found online" search advertising" to be a distinct product market. Specifically, in 2007, the Commission
noted that ''advertisers purchase different types of ad inventory for different purposes," andconcluded that "the sale of search advertising docs not operate as a significant constraint on
prices or quality of other online advertising."419 The Department o f Justice found that searchadvertising was a relevant antitrust market in 2008, and again endorsed search a~vertising asa relevant market in 2010. 420
While no cowt has yet determined that search advertising constitutes a relevantmarket, courts have repeatedly recognized naJTOW advertising markets. For example, inTimes-Picayune Publishing Co. v. United States,421 the Supreme Court identified newspaper
advertising as a unique antitrust market. There, the Court held that there were two "separate
though interdependent markets"- one market for selling news and ads to readers and a

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The consumers in this market arc the publisher wcbsitcs that wish to provide searchservices and return search advertisements on their websitcs, while the sellers are thehorizontal search providers, Google, Bing, and Yahoo!. 43 1
Staff has interviewed a number of publishers of various sizes, and they rovide very
consistent responses on the issue of cross-elasticity of demand. Publishers report that searchand search advertising syndication monetizes better than display advertising or other content
that they might place on their websites. 432 The publishers do not view other fo

I s ofadvertising as viable substitutes for search and search advertising syndication.43 None of the
publishers told us that a modest (5 to 10 percent increase) in the price for searc and search
advcttising syndication would cause them to shift away from search and search advertising
syndication in favor of other forms of advertising or web content. 434
Further support for this relevant market comes from Google's efforts tosystematically reduce TAC, or the amount of money Googlc shares with the pu lisber fromsyndicated searches. A decline in revenue share is effectively a price increase t the
publishers. A number of the publishers have seen their revenue share from Goo le decline
significantly in recent years as a result ofGooglc's efforts.m Of the publishers ptaffhas
interviewed, none have reduced or eliminated their usc of search and search adv~rtising
syndication in response to these price increases. 436 In effect, Google's successful efforts tosyslcmatically to reduce revenue share constitutes a natural experiment to deterline theIlikely response to a SSNTP. The publishers' response to Google's price increases has been
universally consistent with the proposition that search and search advertising syndication(search intermediation) is a relevant market.

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b.

Substantial Upfrout Investment

Along with specialized algorithms, search and search advertising platfonus require
enormous investments in the technology and infrastructure required to crawl and categorize
the entire lnternet.

443

For instance, in 20 11, Google spent more than $5 billion or researchand development, although this figure is inclusive of all ofGoogle's divisions. 444 And, in
2010, Microsoft invested more than $4.5 billion into developing its algorithms and buildingt. I capacity. necessary to operate B.mg.445
1t1e
phys1cac.

Scale Effects

As discussed at length earlier, Internet search, search advertising, and search
syndication arc markets that are characterized by substantial scale effects. As moreconsumers use a general search engine, its search algorithms are honed to improve its
accuracy in retrieving the information that consumers want. More users also leads to anincreased number of advertisers. And, as the number of advertisers that place ads- and thenumber of consumers who click on those ads - increases, the ad-serving algorithrs improvetheir ability to predict what advertisements stimulate consumer "clicks." This, i turn,inc~eases monetization .for the. search engine, its a~ve~tisers, and its syn~ication rrtn~rs,

WhiCh leads to the cychcal cftect of greater partiCipatiOn by both advertiSers and rubhshers.
This effect, which bas been termed the "virtuous cycle," represents a significant ~arricr for
any potential entrant.446
Indeed, according to Microsoft, its greatest barrier is obtaining sufficient scale
through its collection of search and advertising data, and it faces an enormous task in trying
to catch up with Google. Despite substantial investments in technology and infrastructure,
Microsoft has yet to make a significant dent in Google's market share, and has b Ien losing

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trafficked websitcs, which, in tum, magnifies the problems of scale effects. In addition, theexclusive agreements act as barriers to smaller, more specialized search advertising platforms(e.g., a network specializ ing in local Washington, D.C.-based advertising, or in specificcategories, such as travel).

B.

COOGLE HAS ENGAGED IN EXCLUSIONARY CONDUOT

Conduct may be judged exclusionary when it tends to exclude competitor "on somebasis other than efficiency," i.e., when it "tends to impair the opportunities ofrii ls" but"either docs not further competition on the merits or does so in an wmecessarily restrictive
way.'"'

52

In order for conduct to be condemned as "exclusionary," Staff must sh9w that

Google's conduct likely impairs the ability of its rivals to compete effectively, and thus toconstrain Google 's exercise of monopoly power. 453

1.

Coogle's Preferencing of Google Vertical Properties Within Its
SERP

As described earlier, Staff has investigated whether Googlc is unlawfully
prcfcrcncing its own vertical content over that of rivals, while simultaneously deP,oting rival
vertical websitcs, in order to maintain, preserve, or enhance its monopoly power in themarkets for search and search advertising. Althollgh we believe that this is a clol·e question,
we conclude that Google's prc.fcrencing conduct docs not violate Section 2.

a.

Coogle's Product Design Impedes Vertical Competitors"As a general rule, courts are properly very skeptical about claims that competition
has been harmed by a dominant fum's product design changes . . . . Judicial deference toproduct innovation, however, does not mean that a monopolist's product design decisions are

per se Jawful.'"'54

In United States v. Microsoft, the D.C. Circ uit conc luded that several

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The theory of harm to competition is mainly one of reduced innovation: that, when

faced with Google 's seamless ability to enter into highly monetizable categories ofcommerce and simultaneously to disadvantage its competitors, existing competitors cannot
innovate at the same pace; new or i1movative vertical websites will cease to entc the market;
and consumers will be faced with a corresponding reduction in innovation and choice.459b.

Google's SERP Changes Have Resulted In Anti ompetitive
Effects

Google's conduct has resulted in significant harm to 1iva l vertical websit~s in a
number of different categories. As described earlier, in the comparison shoppinJ category one of the first areas in which Google vigorously expanded its own offering, while
simultaneously demoting rival offerings- many rival websitcs have experienced significant
declines in traffic. Data obtained from NexTag and Shopping.com, among others, suggests
that, as a result of Googlc's conduct, these web sites have experienced significant drops intraffic. Google's internal data confirms this impact.460
Simultaneously, Google's prominent placement and display of its Univer al Searchproperties led to gains in user share for its own properties. For example, Google s inclusionof Googlc Product Search as a Universal Search result turned a property that the Google
product team could not even get indexed by Googlc's web search results into the number one
viewed comparison shopping website on Googlc. 46 1c.

Google's Justifications for the Conduct

Google claims that the conduct under review improves its product and benefits users.
"[A] design change that improves a product by providing a new benefit to consumers does
not violate Section 2 absent some associated anticompetitive conduct." Allied Orthopedic
Appliances, Inc. v. Tyco Health Care Group LP, 592 F.3d 991, 998-99 (9th Cir. 2 10).

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results. Google measures the quality of its verticals by assigning relevance valu ( to eachindividual vertical result, i.e., to each merchant in a specific product search, or t eachlocation in a local search (which may be ranked by popularity, rating, number ofGooglc
reviews, distance, and other factors).
Google's web search results, on the other hand, receive a score based on he text readfrom crawling the contents of the page. Based on the crawled text, the pages are rated using
factors such as click-through rates (i.e., how often previous users clicked on the r ge),commerciality (i.e., whether the page has too many ads), and the page's PageRank.468 With
Googlc's current algorithms, Google cannot directly compare, say, the ranking for a specificrestaurant (in its own local results) to the ranking for an entire web page (in someone else's
local results).

469

On the other hand, Microsoft has told us that Bing uses a single signal -click-through rate- to determine where to place the Universal Search content within theorganic search results. 470
Google's justification for promoting its own properties above that of competing
properties automatically when those properties appear (reca ll the algorithms that oosted
Googlc Product Search to the top of the SERP whenever another comparison shrping
website was deemed relevant) is not as strong, but still has some force. Google'
justification for this conduct is that, if another vertical property is deemed rcleva1,1t by
Google's algorithms, Google's vertical property must also have high quality results - andGoogle's rich Universal Search results are more helpful to the user than "blue links" to othercomparison shopping websites.
Google 's justification for surfacing only (or mainly) Google-sourced con ent- rather
than third-party vertical content - w ithin its Universal Search results is less conv ncing.

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Google's defense for this conduct essentially boils down to "user expectations." Sergey Brio
testified that Google's showcasing of its Universal Search results is not inconsistent with the
demotion of other similar vertical content because Universal Search represents a "modechange" for users. 476 According to Brin:
So when you search for products rather than searching for web p ges, I feellike that's more of a mode change. You know, you're switching in fact, you
can switch .... You can switch to product mode. And I think th t would be
confusing in the user interface if you were to just get a web link, ou know,that looked li ke a normal Googlc result and yet it takes you to an ther Google
search. l think people understand mode changes. They might unacrstandresorting something in a different way. But I think ultimately whfn you clickon an individual [web] link, you want to get an answer. You don t want to getanother set of search results. 477
In other words, Google's position is that, if a user conducts a search on Google for a
product, that user is looking for Google 's search results, not another list of search resultsfrom another search provider. However, Googlc has presented no evidence ofu~er
expectations in this area. 4 78 Indeed, Google's vertical properties are typically not labeled as"Google" results, and thus, outwardly at least, provide no cue to a user that he or she is"switching" to a different mode of Google search.479 Nevertheless, Brin testifie~ that "theuser interface is pretty clear'.480 - "the link that says 'shopping results for' is cle!rly a
specialized part of the interface. It doesn't appea r to be just like another web pa e.''481d.

Google's Additional Legal Defenses

Setting aside efficiency justifications, Googlc has argued - successfully b1 several
litigations- that it owes no duty to assist in the promotion of a rival's website or searchplatform, and that it owes no duty to promote a rival's product offering over its own productoffcrings.

4 82

1ndeed, one reading of Trinko and subsequent cases is that Google ·s privilegedin blocking rivals from its search platform unless its conduct falls into in one of ·everal

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ln sum, Staff acknowledges the difficulties inherent in this area of the investigation,

not only because of the legal hurdles we would face, but because ofthe strong
procompetitive justifications Google has set forth. We arc faced with a set of facts that canmost plausibly be accounted for by a nanative of mixed motives: one in which G ogle's
course of conduct was premised on its desire to innovate and to produce a high q ality search
product in the face of competition, blended with the desire to direct users to its o n verticalofferi ngs (instead of those of rivals) so as to increase its own revenues. Indeed, t e evidence
paints a complex portrait of a company working toward an overall goal of maint3!ining its
market share by providing the best user experience, while simultaneously engaging in tactics
that resulted in harm to many vertical competitors, and likely helped to entrench poogle's
monopoly power over search and search advertising. The determination that Google's
conduct is anticompetitivc, and deserving of condemnation, would require an extensivebalancing of these factors, a task that courts have been unwilling- in similar circumstances to perform under Section 2. Thus, although it is a close question, Staff does not recommendthat the Commission move forward on this cause of action.

2.

Google's "Scraping" of Rivals' Vertical Content

As described earlier) Staff has investigated whether Google bas w1lawfb ll "scraped"
or appropriated - the content of rival vertical wcbsitcs in order to improve its own verticalproducts, so as to maintain, preserve, or enhance its monopoly power in the markets forsearch and search advertising. We conclude that this conduct violates Section 2 and Section
5.

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ticket even ~f compensated at retail price revealed a distinctly anti competitive
bent..t97
Appellate courts have focused upon Trinko 's reference to the "unilateral terminationof a voluntary course of dealing," as a critical limitation upon a monopolist's discretion in
determining whether to deal with a rival. For example, in American Central Eastern Texas
Gas Co. v. Duke Energy Fuels LLC,498 the Fifth Circuit upheld an arbitrator's det rminationthat the defendant natural gas processor's refusal to contract with a competitor fo additional
processing capacity was unlawful. Plaintiff was both a "gatherer" and "processo " of naturalgas. The plaintiff alleged that, because it was not economically feasible to open

lrs ownprocessing plant, it contracted with the defendant for processing capacity. 499 After two yearsof using the defendant's processing plant, when the plaintiff entered into renegotiations for
additional capacity, the defendant proposed terms that it " knew were unrealistic orcompletely unviable" to the plaintiff, including a very high price, "in order to exclude [theplaintiff] from competition with [the defendant] in the ... gas processing market."500 The
Fifth Circuit upheld the arbitrator's conclusion that the defendant unlawfully refused to deal
with the plaintiff, acknowledging that, while courts "must be cautious in finding xception to
the right to refuse to deal," here, the defendant's refusal, in the context of a "prio course of
dealing" with plaintiff, supported a finding of liability. 50 1
Here, much like in Aspen Skiing and Duke Energy, there is a compelling narrative----

regarding a prior voluntary course of dealing. Specifically, Google had long-established,-voluntary, and mutually beneficial licensing agreements with both Yelp and Tri_pAdvisor.
Through its agreements with these (and other) third parties, Google secured relevant andhigh-quality content for its web search product. In exchange, through their prcse ce in

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collaborative networks if we permit one dominant firm to run away with all of the private
gains once it is in a position to do so:.s07
There are some distinctions between the conduct in Aspen and Google's conduct herethat bear mention. First, the exchange of value here is non-linancial. The bencfi to Google
accrues fro m securing high-quality content, while Googlc's partners secure traffit However,this distinction appears to be insignificant. Whether the payment is in the formldollars orother benefit is of little consequence to the purpose or effect of Googlc's threate ed refusal todeal. sosMore importantly, Google ultimately did not "refuse" to deal with Yelp, and theirrelationship continues to this day. While Google never followed through on its tyreat toremove these websitcs entirely from its web search results, it is clear that Googles threat was
intended to produce, and did produce, the desired effect (for a significant period of time),
which was to coerce Yelp and TripAdvisor into backing down on their efforts to rave theirvaluable content removed from the Google Local product. Google's threat also sent a
message to the broader marketplace that Google could, and would, use its mono oly powerover search to extract the fi11its of its rivals' innovations. Consequently, Google' threat
itself - although not a consummated refusal to deal - may be challenged as excl ionary
conduct. 509
This theory of exclusion does not reach the search prefcrencing conduct we assessedsupra at pp. 78-86. Here, we view the evidence of benefi t to Google stemming from its
licensing agreements with third-party content providers as offering the critical distinction.
Google's long-standing licensing agreements with parties such as Yelp and TripAd visor offer
clear and convincing proof not just of an affirmative relationship between Googl and these

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Amazon's product ranking information, which was never part of any licensing agreement
between the parties). Under this approach, Googlc's conduct can be analogized to theimposition of higher costs, through onerous terms of dealing, on wcbsitcs wbos content
Google deems the most valuable to its own web search product. 510 Viewed in is way,condemnation ofGooglc's conduct depertds not on any prior established relatio ship with theaffected vertical websitcs, but rather, on Google's motivation in scraping conte t from highquality verti<.:al competitors- the motivation to keep vertical websites from sip oning users
from Google's web search property (and thus, maintaining, preserving, or enhamonopoly position in Lhe market for search).
While a traditional Section 2 analysis relics on a prior course of dealing as agatekeeper, or a bright line proxy, for showing that the defendant's purpose and effect was
anticompetitive, Section 5 empowers the Commission to demonstrate harm to thecompetitive process in other ways. 5 11 For example, Googlc's threat (and willingness) todegrade its own web search product- by banishing high-quality vertical wcbsites from its
web search results altogether- suggests that Google's motive in scraping high-quality
con tent from its vettical competitors was not procompetitive.

b.

Google's "Scraping" Has Resulted In Anticomt etltive

I.

Effects

As described earlier, Go ogle's "scrapi ng" of the content of rival vertical websites has
resulted in harm to these vertical wcbsites and, more broadly, to the competitive process.
Because Googlc scraped information over an extended period of time, it is diffi ult to point
to declines in traffic that are specifically attributable to Google's conduct. How ver,
Google's conduct has arguably lessened the incentives of vertical wcbsitcs like
TripAdvisor, CitySearch, and Amazon to innovate.

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In sum, the evidence shows that Google used its monopoly position in search toscrape content from rivals and to improve its own complementary vertical offerings, to thedetriment of those rivals, and without a countervailing efficiency justification. ~oogle's
scraping conduct has helped it to maintain, preserve, and enhance Google's mo opoly
position in the markets for search and search advertising. Accordingly, we beli ve that thisconduct should be condemned by the Commission.

3.

Google's API Restrictions

Staff has investigated whether Google has employed anticompctitivc contractual
restrictions to prevent advertisers from using third-party tools to simultaneously manage
campaigns on Google's search advertising platform (AdWords) and rival advertising
platforms (e.g., Microsoft's AdCenter). As described earlier, Microsoft has alleged that
Googlc is denying Microsoft critical scale by employing these restrictions, and thus
impairing Microsoft's ability to compete effectively in the markets for general search andsearch advertising. We conclude that Google's API restrictions violate Sectionr-

Google's introduction of the AdWords API was a clearly procompetitivj
development that benefitted advertisers, SEMs, and Google alike. However, th restrictive
conditions in the API usage agreement have anticompctitive effects without off: etting
precompetitive benefits. They impede the efficient usc of advertisers' own camhaign data,
creating additional, unnecessary transaction costs for advertisers that might wisli to use thatdata to run advertising campaigns on other search networks. The restrictive conr itions are
not inherently tied to the product. Accordingly, we may evaluate Google's inclusion of therestrictive conditions as a stand-alone act and weigh their anticompetitive effects against any
potential procompetitive bcnefits.517

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The restrictive conditions are unreasonable if their anticompetitive effecj outweightheir procompetitive virtues. Ou r investigation has shown that the restrictive cor ditions do
not have any procompetitive virtues, whereas their anticompctitivc cf.Tccts, whil difficult tomeasure, are substantiaLb.

The Restrictive Conditions Have Resulted In
Anticompetitive Effects

The restrictive conditions hann competition in three broad ways. They rl duce
innovation, increase transaction costs, and degrade the quality ofGoogle's rivals in searchand search advertising.
As noted above, severa l SEMs have been forced to remove campaign cloning
functionality by Google. Beyond removing these products from the marketplace, Googl e 's
restrictive cond itior1s have created a profound d isincentive for tool developers to innovate inthis area. A h igh performance cross-network campaign management tool would need to be asoph isticated product, able to allocate and adjust bids on keyword s in different auctions withdifferent and rapidly shifting competitive environments. However well the first-generation
tools performed, it seems obvious that their performance would only have imprTed as SEMs
and their c lients tested these tools in the fie ld. Google's restrictive conditions stopped thismarket segment in its infancy. There would be little to no demand for a cross-network
management tool without the prospect of accessing the dominant search network, AdWords.
Google's imposition of the restrictive conditions has increased the transaction costs
for all advertisers other than those large enough to make the internal investment~ to develop
their own campaign management tools. 521 For the rest, they must devote additional staff time
to manage multiple parallel campaigns. Some may choose to usc work-arounds, by which
they download their AdWords campaigns into CSV (or plain-text) files, make th ~requisite

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Moreover, Google ignores the possibility that even larger advertisers that multi-borne
would do so more without the restrictions. As described above, Microsoft's internal studies
suggest that advertisers who advertise on both platforms do so unevenly and unequally, thus
leading to better, more targeted, and more relevant ads on AdWords than on AdCenter. As
described earlier, having the "right" ad for the " right" user at the " right" time is ' ritical to asearch engine's abi lity to improve its ad-serving algorithms and its revenue-per-search (or
RPS).

529

The lack of smaller advert ism, combined with the lack of regular optr ization byeven the larger advertisers who advertise on both platforms, places Microsoft in asignificantly inferior position to Google in tem1s of being able to provide that "right" ad forthe "right" user at the "right" time.
While the magnitude of these effects arc unclear, their direction is clear: advertisers
arc spending less on the non-dominant search networks. For advertisers, this means forgone
advertising opportunities that presumably would have been profitable, but for the restrictive
conditions. For Google's rivals, the diminished spend resulting from the restrict ve
conditions means lost revenue, which diminishes their ability to invest in quality
improvements in search. The reduction in ads placed also reduces the overall qu lity of theads served on the rival search networks, which reduces the usefulness of the ads erved tousers, reducing, in turn, users' propensity to click on ads, an effect that broadly egrades thequality of the rival search network It is also possible, though more speculative, that reduced
ad quality may modestly reduce the usefulness of the rival search engines, particularly onvery commercial queries, which in tum may suppress the number of searches performed on
the rival networks. The degradation of Google's rivals both as advertising platfQmls and as

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tools that perform well will lose clients. In fact, even if SEMs and agencies were in no
danger oflosing their clients' business, they would still have a strong incentive to improvetheir clients' returns as a way to encourage their clients to spend more on searc advertising,increasing the third parties' commissions in the process. Jn a round-table discu sion hosted
by Google, SEMs and agencies made this exact point to Google. 538 ln brief, the e third
parties incentives are highly aligned with Googlc's interests, precisely the oppo ite of what
Google contends.539
Google, meanwhile, is unable to identify any concrete examples of any i I effects
from the purportedly misaligned incentives of SEMs and agencies. Google has represented
to advertisers and agencies that " we have found that advertisers experience higher returns

coherent manner." 540

owcvcr, Google has no such cvidence. 541 Go gle did investigate thepotential innuence SEMs would have on the rate of spendi ng by their clients, and determinedthat the spend for advertisers represented by SEMs increased at a higher rate than did spend
for other advertisers.542 Google has not engaged in any experiments to determine what effectrelaxing the restrictive terms and conditions might havc. 543
Moreover, there is already a different provision in the APT AdWords Te
Conditions that adequately addresses any concern about misaligned incentives.

sa

condition of using the APT, SEMs and other tool developers are required to expose a Googledefined set of minimum func~onality. 544 The required minimum functionality provision
directly addresses any legitimate concerns that Googlc might have about SEMs1ailing toexpose important features of AdWords to their advertiser clients. Google has n t explained
how the required minimum functionality requirement is inadequate in this regar .

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Google deems important to the performance of AdWords. Although Google now claims thatthe required minimum functionality condition and the restrictive conditions are both aimed at
the lowest common denominator concem,550 it cannot explain why the required minimum
functiona lity requirement alone would not suffice to alleviate the lowest comm ndenominator concern_ Indeed, this document suggests that the restrictive condi ·ons wereactually designed specifically to reduce the likelihood that advertisers would ex end theircampaigns to rival search networks. 55 'In sum, the effects of these restrictive conditions, combined, have the te dency topreserve and enhance Google's dominant position in the search advertising market.
Unjustified by any procompetitive benefits, we believe that Googlc's restrictive conditions
should be condemned by the Commission.552

4.

Coogle's Exclusive and Restrictive Syndication Agreements

Staff has investigated whether Googlc has entered into anticompetiti ve, exclusionary
agreements with websitcs for syndicated search and search advertising services (AdSense
agreements) that serve to maintain, preserve, or enhance Googlc's monopoly power in themarkets for search, search advertising, or search and search advertising syndica ion (searchintermediation). We conclude that these agreements violate Section 2.

a.
~

Google's Agreements Foreclose a Substantial ortion of theRelevant Market

Exclusive deals by a monopolist harm competition by foreclosing rivals !from needed~ relationships with distributors, suppliers, or end users. For example, in Microso t, then.J
defendant Microsoft 's exclusive agreements with original equipment manufactu ers andsoftware vendors were deemed anticompetitive where they were found to preve t third
parties from installing rival browser Netscape, thus forec losing Nctscape from t e most

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party dataset routinely used in the industry to analyze query volumes and market shares.

561

As noted earlier, however, in a company data set provided by Microsoft, Yaboo! 's syndicatedquery volume is significantly higher than that reflected in ComScore.562 Relianc on thelarger figure would clearly result in a dramatically lower foreclosure number for

oogle's

agreements. We are trying to get to the bottom of this discrepancy now. Howev r, based on
our broader understanding of the market, we believe that the ComScorc set more accuratelyreflects the relative query shares of each party. 563
Below, Staff lays out three scenarios: the most conservative foreclosure scenario; themost aggressive foreclosure scenario; and the "intermediate"- or most likely defensibleforeclosure scenario. ln our most conservative estimate, the foreclosure rate is approximately
20 pcrcent.564 In our most aggressive estimate, the foreclosure rate is approximately 66
perccnt.

565

In the "intennediatc" scenario, the foreclosure rate is approximately 52

percent.566
Obviously, given the limitations of the various datasets, the calculated foreclosure
rates arc of limited value. Nevertheless, it is clear that Google has tied up a substantial
portion of this distribution channel with exclusivc and restrictive agreements. ln he market
for search syndication, Google has exclusive or restrictive agreements with 12 of the top 20
companies (60 percent) and 4 of the top 5 (80 percent). The 20 largest companies accountfor 94 percent of total query volume.567 Courts have found that foreclosing rivals from themost effi cient means of distribution can be especially problematic.568 Access to these largest
players is by far the most efficient method for Bing to gain query volume in the syndication
channel. 569

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the publishers we interviewed did not object to exclusivity because they wanted to use
Google for all their search syndication needs anyway.
Our investigation indicates that this objection rests on a fallac ious assu ption:
namely, that Bing's average monetization gap is derived from its consistent fai ings acrossthe-board. If, instead, that overall average is derived from sources of differing uality, thatmeans Bing actually does have opportunities to pick off incremental business fr m Google inthose areas where the monetization gap is lower, particularly where it can make up for someof its monetization deficiencies by otlcring higher revenue shares. Evidence fr m Microsoft
indicates that there is indeed heterogeneity in the quality of its search advertising product,with comparative strength in certain c~mmercial categories, such as travel and people(social) scarch.571
Given this state of affairs, one likely path for Bing to win new syndication business isprecisely the one blocked by the exclusivity provisions in Google's syndication agreements.
All the publishers that expressed interest in using Bing told us that they want to split up theirbusiness, giving Bing opportunities where it can compete, and relying on Googlc for thebalance of their needs.
In addition to the immediate impact on Bing, our investigation suggests hat specialty

search advertising platforms may emerge in the absence of Google's exclusivit provisions.
For example, lAC's CityGrid property sought to build its own advertising platfQrm to serve
advertising targeted to local markets. 572 CityGrid monetizes its websites
from small''mom and pop'' stores, medium-sized businesses, and large chainsto gain local eustomers.

573

CityGrid decided that it wanted to build its own

network rather than "put all [its] eggs in one basket" by going with Google106

are trying
sing.IVC Iy. 574

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5 to I 0 percent increase in its overall query traffic would be "very meaningful" because Bingis at the lower part of the scale curve where "each percentage point is critical."579
While there is not enough evidence on this point to reach definitive cone usions,internal Google documents suggest that Microsoft's view of things may be close to the truth.
Googlc's interest in renewing deals with some of its largest syndication customers may havebeen, in part, to keep Microsoft from gaining scale. For example, an internal Google analysisof the 2010 AOL renewal explains:s marginal search share but represents sea e gains for a
Microsoft + Yahoo! partnership.... AOL/Microsoft combinatiof hasmodest impact on market dynamics, but material increase in scale ofMicrosoft's search & ads platform. 580
When a senior Googlc executive was infonned that " Microsoft [is] aggressively
wooing AOL with large guarantees," he responded that:
I think the worse case scenario here is that AOL users get sent to Bing, so
even if we make AOL a bit more c~mpeti tive relative to Google, fhat
seems preferable to growing Bing.,') 81
Ac ord ing to Googlc documents, the company sought to pursue the AOL deal algressively,582

While the evidence summarized above is consistent with the theory thatesc

exclusive dealing arrangements are creating anticompctitivc effects, there are neverthelesssome significant limitations in this evidence. Perhaps our biggest concern is that today, so
few publishers arc actively interested in using multiple suppliers. As noted earlier, we haveidentified only three companies that are subject to the exclusivity or "preferred placement"
provisions today and clearly voicing unambiguous concerns: cBay, NexTag, andBusiness.com. In addition to these three companies, AmaLon is not foreclosed, butvoiced very similar concerns and is very worried that it may be subject to cxclus vity in the

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dynamics as publishers have the opportunity to consider - and test - alternatives to Google's
AdScnsc program. While the speed and strength of these long-term improvements cannot be
accurately forecast today, this is a situation where the ncar-term competitive imp cts may beovershadowed by the long-term improvements, as competitive forces arc unleas led andadditional dynamism emerges.

c.

Google's Agreements Are Not Justified By Effic'encies

Google has offered three business justi.ftcations for its exclusive and restr clive
syndication agreements with publishers. First, Google notes that there is a long- tanding
industry practice in favor of exclusivity dating from the time when the publishers demanded
large, guaranteed revenue share payments regardless of actual performance. However,guaranteed revenue shares are now virtually non-existent.
A second, and related. justification is that Google is simply engaging in a vigorouscompetition with Microsoft for exclusive agreements. Although Microsoft asserts that it
would like the opportunity to compete on a non-exclusive basis (and will happily serve evena sma ll portion of a website publ isher's queries), some publishers report that Microsoft itself
sought various forms of exclusivity in contract negotiations.m Moreover, while r icrosoft
has aggressively pursued some very large website publishers, it appears that Mic osoft is not
generally pursuing the broader syndication busi11ess Loday. 586 Google may argue that the fac tthat Microsoft is losing in a competitive bidding process (and indeed, nol compe ·ng as'
vigorously as it might otherwise) is not a basis on which to condemn Googlc. However,I
Google has effectively created the rules oftoday's game, and Microsoft's subs

tial

mone tization disadvantage puts it in a poor competition position to compete on a aU-ornothing basis.

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While we acknowledge the limited effects here, it is worth noting that the market forsearch and search advertising syndication is, inarguably, not robustly competitive today.
Googlc has been unilaterally reducing revenue share percentages to many of its syndication
customers (in effect raising prices) with apparent impunity.589 One of the largest customers,
Amazon, decided that it is in its long-term, strategic interest to fu nnel some que1 volume toBing, even if it is losing money on each query. 590 Ama7.on is using multiple sup~liers just to
try to foster a more competitive marketplace.59 1 Where markets are functioning Jo poorly,
the rationale for government intervention is stronger, even in situations where th near-termcompetitive harm directly attributable to the challenged conduct may be small. Although thisconduct presents a closer question, we believe that Google's exclusive and restrictive
agreements have not only helped to maintain, preserve, and enhance Google's monopoly
power in the market for search and search advertising syndication (search intermediation),but also in the underlying markets for search and search advertising. Therefore, we believe
Lhat the Commission shou ld condemn Google's exclusive and restrictive syndica ion

agreements.
IV.

POTENTIAL REMEDIES
Staff has identified several possible remedies to Google 's conduct. These remedies

arc described below.
A.

Scraping

There are at least two possible remedies for Google's scraping conduct. First,
Google could be required to provide an "opt-out" feature to remove "snippets" of website
content (e.g., user reviews, ratings) from Google's vertical properties, but retain

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partners considering alternatives to AdSense may grow in the event that these agreements areenjoined.595

V.

LITIGATION RISKS
We have identified throughout this memorandum the many substantial ri ks

associated with bringing a case against Googlc. On a global level, the record wit penni!
Googlc to show substantial innovation, intense competition fi·om Microsoft and ~thers, andspeculative long-run harm. Here, we highlight some specific facts that present t e greatest
litigation risk:
I.

"Competition is just one click away. "596 Googlc does not charge consumers,
and they are not locked into Google. The durability ofGoogle's monopoly
power is questionable with an increasing number of wcbsites (e.g., Faeebook,
Twitter) competing for user time and advertiser dollars.

2.

Universal Search is a "product improvement" that has resulted in substantial
benefit to its users.

3.

Google's organization and aggregation o[ content from other wcbsites adds
value to the product for consumers.

4.

The largest advertisers (that produce the most revenue on Google's AdWords
platform and Microsoft's AdCenter platform) already advertise on both
AdWords and AdCenter.

5.

The most efficient channel through which Bing can gain scale is Bing.com,
not syndication or other distribution channels.

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VI.

CONCLUSION
Staff concludes that Google's conduct has resulted - and will result - in real harm toconsumers and to innovation in the online search and advertising markets. Google has
strengthened its monopolies over search and search advertising through anticompetitivemeans, and has forestalled competitors' and would-be competitors' ability to cha lenge thosemonopolies, and this will have lasting negative effects on consumer welfare. Sp~cifically,
StalT believes that:1.

Google has unlawfully maintained its monopoly over general searcJ1 andsearch advertising, in violation of Section 2, or otherwise engaged in w1fair
methods of competition, in violation of Section 5, by scraping content fromrival vertical websites in order to improve its own product offerings.

2.

Google has unlawfully maintained its monopoly over general search, searchadvertising, and search syndication, in violation of Section 2, or otherwise
engaged in unfair methods of competition, in violation of Section 6, byentering into exclusive and highly restrictive agreements with we publishers
that prevent publishers from displaying competing search results r searchadvertisements.

3.

Google has unlawfully maintained its monopoly over general search andsearch advertising, in violation of Section 2, or otherwise engaged in unfair
methods of competition, in violation of Section 5, by maintaining contractual
restrictions that inhibit the cross-platform management of advcrtis~ng
campaigns.

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1

See Google Inc., File o. 111-0163, Resolution Authorizing Usc of Compulsory Process in Nonpublic
Invest igation (Jun. 13, 20 II).
2
In total. the Commission has issued 20 subpoenas (to Googlc, Microsoft, Yahoo!, Amazon, eBay, NexTag,
Thefind, Living Social, Yelp, Apple, Motorola Mobi lity, Samsung, Sony, Toshiba, LG Display, RIM, AT&T,
Sprint Nextel, T-Mobile, and Verizon) and two voluntary access letters (to Expedia and Trip AdJisor).
3
TI1e investigational hearing of CEO and co-founder Larry Page, originally scheduled for Jun. 2~, has been
delayed indefinitely due to the illness of Mr. Page. StafPs last scheduled investigational hearing a Google
executive, Andy Rubin (Android founder and head ofGoogle's Android division), is slated for Aug. 23.
4
Letter from Joaquin Almunia, Vice-President o f the European Commission, to Eric Schmidt, G6ogle, dated
May 2 1, 20 12 (copy of the letter is on file with Staff).
I

rr

s !d.
See Discussion Paper Submitted by Google on The Preliminary Concerns Identified by the European

6

Commission and Google's Proposed Solution, attachment to Letter from Maurits Dolmans eta!., t:leary
Gottlieb Steen & Hamilton LLP, to Cecilio Madero Villarcjo, Deputy Director General, Europeal Commission(Jun. 30, 201 2) ("Google-EC Settlement Proposal").
'The State of Mississippi is also conducting a separate investigation into Google, but is not wor~ng with themulti-state b'roup or w ith the Commission. The Commission declined to grant access to M ississi~pi due to thestate's retainer of an outside law firm to conduct the investigation and the multi-state group's denial of access(on the same basis).
6
The states have jointly retained economist Rick Flyer as a consulting expert and, potentially, as a testifYing
expert.
9Kindemart.com LLC v. Google, Inc., 2006 U.S. Dist. LEX IS 8248 1, (N.D. Cal. Jul. 13, 2006); Search King,
inc:. v. Google Tech., inc., 2003 U.S. Dist. LEXIS 27193, (W.D. Okla. May 27. 2003).
10
Person v. Coogle, Inc., 2007 U.S. Dist. LEXIS 47920. ( .D. Cal. Jun. 25, 2007); Google, inc. v.
myTriggers.c:um, inc., Franklin County Ohio C ivil Division Case No. 09cvhl 0- 14836 (Aug. 31, 2011);
TradeComer.com, U.C v. Google, inc., 693 F. Supp. 2d 370, 37R (S.D.N.Y. 2010) (a.ff'd, TradeC:omei.com LLC''· Coogle, Inc., 647 f.3d 472,478 (2 nd Cir. 2011).
11
2006 U.S. Dist. LEXIS 82481, (N.D. Cal.Jul. 13, 2006).
1~ 2003 U.S. Dist LEXIS 27193, *2 (W.O. Okla. May 27, 2003 ).
u !d.
14
Kinderstart.com, 2006 U.S. Dist. LEXIS at *28.
15
693 F. Supp. 2d 370,378 (S.D.N. Y. 2010).
16
Case No. 09cvhl 0- 14836 (Frankli n County Ohio C ivi I Division. Aug. 31, 20 t I).
17
2006 U.S. Dist. Ct. Pleadings 7297, *3 (N.D. Cal. Apr. 16. 2007).
1~ ld. at* 10.
19
Person v. Coogle. Inc., 346 Fed. Appx. 230, 23 1 (9th C ir. 2009).
20
Google owns and operates numerous websites, including: Google Alerts; Books: Finance; Gmail; Images;
Maps; News; Google Plus; Product Search; and YouT ubc.
21
In a separate investigation, opened in Apr. 2012, FTC Staff is investigating whether Google viqlated
commitments to various standard-setting organizations to license standard essential patents used \n the mobile
industry on fair, reasonable, and non-discriminatory tcm1s. See Google-Motorola, File No. 121-0120,
Resolutio n Autho rizing Use o f Compulsory Process inl\'onpublic Investigation (May 25, 2012).
22
Google FY 20 12 Form 10-K (Jan. 26, 2012), at 29, available at
http://scc.gov/Archives/edgar/dma/1288776/ 000 119312512025336/d260 164d I Ok.htm#toc260164 8. ("G oog1e
2012 IOK").
23/d. at 25.
24
Press Release, Microsoft Corp .. MSN Significantly Upgrades MSN Search for Consumers with Major
Performance and Relevancy Improvements (Jun. 30, 2004)
http:!lwww.microsofl.com/ prcsspass/press/20041jun04106-30ImprovedSearcb2004PR.mspx.
25
Press Rele~tse, Microsoft Corp., Microsoft's New Search at Bing.com Helps People Make Bett r Decisions(May 28. 2009) http://www.microso rt.com/presspass/ press/2009/ may09/05-28NewSearchPR.msqx.
26
See Microsoft Corp., Complaint to the European Commission (Mar. 31. 2011) ('"Microsoft EC ubmission").

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H Varian Tr. 88:16-89:7 ("Brand perception is driven to some extent by other [non-search] forms of advertising... We know. for example, that display ads drive brand; brand drives clicks"); Schmidt Tr. 130:18-21 (a brandadvertisement would be a Coca-Cola advertisement that is not trying to get you to buy a Coke, but trying to get
you to think about Coke); Wal-Mart IR (Jan. 23, 2012): Fox Studios 1R (Jan. 20, 2012); Verizon IR (Nov. 1,2011); EAS 1R(Feb. 23, 2012).
44
See Statement of Federal Trade Comm'n Concerning GooglefDoubleClick, FTC File No. 071- 170 (2007). at
5. See also lnterpublic lR (Oct. 20, 20 I I ); Didit.com !R (Dec. 27, 20 II ).
1
45
ContextuaJ ads are somewhat more successful at creating conversions than direct display ads, jut lesssuccessful than search. Contextual advertising is considered a c loser substitute for display adver ising than forsearch advertising in terms of function and performance. See, e.g, Group M TR (Oct. I I, 20 II); Expedia IR(Jan. 23, 20 12). See also, e.g., GOOG-ITA-03-0045511-17 (2009), a t 16 ("content conversions do not lead tosales Iike search conversions"); Brin Tr. 181:1-8 ("the conversions arc different. The click-t.hrot gh is also
different .... So between the two of those, your average content page view is worth signiiicantf less thanyo ur averagt: s~.:arch page, no question about it").
46
Sec Didit.com IR (Dec. 27, 20 II); GOOGFOX-000073028 (2008), at 14. "Re-targeting" me ns serving ads
to users that have abandoned purchases before completed, or who have visited ce1tain websites in the past. Like
search, this type of ad is meant to elicit a direct response, but - unlike search ads- re-targeted ads are notshown in response to a user's declared intent Clickable IR (Oct 24, 2011) (re-targeted disp lay advertising
requires advertisers to act on behavioral calculations and inferences from large troves of data, and does not
generate leads or sales as well as search advertising).
H See Didit.com IR (Dec. 27, 2011); Wai-Mart IR (Jan. 23, 20 12). Social media advertising appears to be more
like display advertising in that it offers a large volume of impressions, but relatively few conversjons. See
Facebook 1R (Jul. l, 20 I I); Facebook IR (Jan. 24, 20 12). See also Matt Lawson, How ro fmegrate Search andSocial Media for Beller Resulls, Yiashable, Apr. 1, 2010, /um:l/mashable.com/2010/04/0llpaid-search-socialmcdia/ (Director of marketing for Marin Software discussing how to develop and integrate paid search andsocial media advertising strategies; social and search advertising are '"two distinctly different tactics- the bidbased, conversion-obsessed. ROI-driven world of paid search and the experimental, brand-building, bard-tomeasure world of social .. . each provide different benefits to your business, so you should leverage theirstrengths instead of trying to get them to deliver results that aren' t suited to the medium. Market,ers usuallyparticipate in social media to create an active dialogue with consumers around their products and services, withthe main goal ofbuilding brand value, and a secondary goal of driving sales. On the other hand, marketers use
paid search primarily to drive sales, leads, and conversions, and don't expect the s hort text ofth,r paid search
ads w do much for brand ing'').
48
Contextual advertis ing is limited by the amount of advertising space ava ilable on web pages addressing any
g iven topic, in which relevant ads can then be served. Re-targeted (or behavioral) adve rtising is } mited by the
number of"cookies" users allow to be placed on their computers (and on how o ften those cooki~s are erased),
and also requires guesswork and heavy analysis on the part of the advc11 iscr. See GOOG FOX-Q00073028(2008), at 13; lnterpublic IR (Oct. 20, 201 1); FTC-EBA V-00000002 (20 12), at 31 (eBay and Shopping.com
spent an ''insigni ticant" amount on contextual advertising). FTCNcxt-00000002 (2012), at 36 (nbn-searchadvertising cannot rep lace search advertising). Social media is sti ll a maturing market, which remains quite
small. Moreover, neither Facebook nor Twitter has been very successful in genera ting conversions, despite theinformation they have available on the interests of their users (see Faccbook IR (Jul. l , 2011; Ja~. 24, 2012);
Twitter 1R (Dec. 13, 201 1)), and both Living Social and General Motors have pulled the majority of their social
media budgets based on u failure to achieve acceptable conversion rates. See Living Social CID Response(20 12), at 17; Joan Muller, GM Says Facebook Ad~ Don't Work. Pulls $10 Million Account, Forbes, May 15,
20 12, available at http://www.forbes.com.isites/ joannmuller/20 12105/15/gm-says-facebook-ads-dont-workpu lls-1 0-million-accountl.
49
Braddi Tr. 11:22-12:2.
30!d. at 26:8-27:8.
1~ Staff continues to investigate Google's conduct in the mobile arena. and will address these issues in a
supplemental memorandum.
32
Google purchased the Android business in 2005 .
.lJ Since Google's release of the first commercially ava ilable mobile device running Android OS n October
2008, Android's market share has grown exponentially. ln Sep. 2009, Apple garnered 24. 1 perc nt share of
1

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sx See Brio Tr. 142:3-144:9, 169:1-19 (Google tracks user clicks to improve quality, citing early NavBoost
algorithm as example of signal that relied heavily on user clicks); Schmidt Tr. 6 1:17-24 ("So clicks matter intenns offeedback to the people who monitor these things. They say our algorithm needs to be improved"). See
also e.g .. GOOGPAGE-000004652 (2008) ("[Click-tracking is) used to track which search resuhs a user
selects. That information then feeds back into our search ranking"); GOOGBRJN-000005558 (2002), at 9("'Traffic/Quality Effect. The more traffic we generate and usage data we collect, the better ourtverall [ad)quality."); GOOCMAYE-000044916-21 (2004), at 18 (Brio notes that "(w]e could take advant ge of our scale
more. [H) ave I 000 or 10000 people feeding information into our algorithms").
s9 Manbcr Tr. 54 :5-56:15 (describing various uses for experiments); Declaration of Satya Nadell , Senior Vice
President, Online Services Division, Research and Development, In Rc Google/ITA (Dcpartmen~ of Justice)(2011 ), at4 ,,, O(d) ("Almost all innovations on the SERP ... go through a formal experimentati?n process
before they are released, and often there are several rounds of experimentation") ("Nadella Decl.f ).
6
FTC-000023(,..44 (2005), at 38 (2005 Founders' Letter).
61
Manber Tr. 57:15-23 (when Manber mn the search quality team, Googlc was running approxi1 ately 5,000
ex perimcnts a year, or about 15 experiments per day, simultaneously); Brin Tr. 160:2-9 (multipl experiments
are run simultaneously, with each typical experiment using approximately one to two percent of total user
volume). Microsoft runs approximately ten experiments simultaneously. Microsoft Corp., "Mi osoft
Response to DG Comp RFI" (Nov. 21, 20 11), at 78.
62
Susan Athey, "Scale in Online Search" (Mar. I 0, 2012), at I 0-1 1; Nadella Dec!. at 4 ~IO(d).
63Susan Athey, "Scale in Online Search" (Mar. 10, 2012), at I 0-1 1 (''Today, Microsoft has relatively few users
it can use for experiments and there is a limit to the number of parallel experiments that a single query can be~an of without compromising the robustness of the results").
Microsoft asserts that additional query volume will also help its algorithms to detem1ine what web pages tocrawl and index. based on observed user interest of similar web pages. Susan Athey, "Scale in Online Search"(Mar. 10, 2012), at 6-7; Microsoft Corp., "Microsoft Response to DG Comp RFI" (Nov. 21, 201 1), at 63("Queries are a critical component of the user data necessary to identify and rank URLs and documents forinclusion in a search index"). Moreover, while Bing maintains an index of approximately 43 billion documents(as of l\ovember 20 II), it "serves'' only 16 billion of those documents. The remaining 27 billion web pages
have not been clicked on recently enough (if ever) to give Bing's algorithms a sense as to "whe'1er they aresuitable" or relevant to user queries. !d. at 63. Google served more than 200 billion doeuments~ lat last estimate,accordi ng to Sergey Brin, who testified that Googlc reached this point several years ago. Brin T . 339:14-23. lt
does not appear that Google relies on query volwne in order to determine what to index. Udi M nber testified
that Google indexes everything it can. Manber Tr. 34:24-25.
6s CX-1 29 (GOOGMANB-000029871-75) (2009), at 73.
6Q See Schmidt Tr. 119:24-120:8 (" .... Think of it this way, advertisers don't put in one ad. Th y put in a
thousand ads against different keywords and different combinations. So if you have a thousand dvertisers anda thousand such combinations, you have a million ads that you can choose from. So that's clearey better thanhaving a hundred ads - right- because you can [pick) the one which is you know, the person .Who wanl<;campi~g equipment that's blue i~1 New Hamps~ire"); Bri~ Tr. 192:10-1.4 ("IIaving a good sele~t\on ~fadvertisers to choose from defimtely helps havmg the option of producmg a good ad, no questiOn"); td. at
193:20-24 (agreeing that having more ads means that Google is more likely to have the right ad for the rightuser at the right time). See also, e.g, CX-81 (COOGROSE-000013304-12) (2004), at 6 ("More advertisers(and the ads they bring with them) increase overall ads quality by increasing the number of total choices.' Thisis yet another exmnple of a positive feedback and/or scale effect").
67
See Schmidt Tr. 73 :2-23 ("Having more advertisers fills out your otTering.... [l]fyou have one advertiser,
only one, and then the ad is - is - the ~'rong ad - obviously, more advertisers up to some point of diminishingreturns does acrually kind of fill out your ponfolio"); Wojcicki Tr. 110:16-22 ("Well, I think whTn we havemore advertisers we're able to cover more topics''). See also e.g., GOOCBRJN-00001977 1 (tmdated, c. 2004),
at 51 ("More advenisers improves partner monetization: more ads on more queries (coverage, CTR). More
competitive auction (CPC). Overall, higher moneti2ation (RP\4)").
6x See Urin Tr. 171:24-173:6 (Google relies on what ads a user clicks on and how the user engag s with the ad
to determine whether to show an ad, how to rank the ad, and how to price the ad); Schmidt Tr. 7 · : 13-22 (moreads gives a search engine "more at-bats," or "more opportunities to show that ad"); Wojcicki Tr. 104:17-19,
I05:20-106:9 (testifying that "we determine relevance mostly by do we see the users have clicke on these

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publishers and advertisers"). C.f GOOGFOX-000025982-83 (20 I 0), at 82 (noting that recent p ess article is"premised o n the notion that MSFT and Yahoo are not able to take full ad revenue advantage ofjeir search
query share, which may be true").
711
See Schmidt Tr. 74:3-8 (agreeing generally with the concept of the "virtuous cycle," and testifying that"[t) hese are scale business(es). You want to get to scale. . .. Larger indices; more advertisers; o~viously, more
revenue; more reach .. . those sorts of things."); id. at 85:8-87:20; Brin Tr. 225: 17-227:4 (agreeif"g generallywith the concept of the "virtuous cycle"). See also Preston McAfee, Presentation, "Scale, Data, pnd Machine
Learning: Solving the Search Problem" (20 I I), at 6 ("scale, liquidity, and access to data results~ a virtuous
cycle"); Microsoft EC Submission at 17 ("for smaller search engines, scale generates a 'virtuous cycle' t.h.at
mpidly improves quality").
77
Sea Schmidt Tr. 178:17- 179:5 (" .. . . There's some evidence ... that we're past the point wh re there's any
particular benefit of using the user . .. inforn1ation to improve [search quality on tail queries). In other words,
we have enough users already that more users don't make it much better."); id. at 284:3-286:1 8 Qsame); Brin Tr.
145:7-153:6 (discussing scale curve and diminishing returns; testicying that, while data sources i e "still
valuable, but you know, ... you'd have to like double or ten times them to get you know, materi lly better'';
agreeing that Google' s search quality will no t improve significantly based on additional queries oday; andtestifying that ifGoogle had 10-20 percent fewer queries today, this would create a "pretty margfnal difference"in search quality); Manber Tr. 150:14-23 ("Well, obviously, after a while, there's a diminishing re turn fordata."). See also e.g., CX-129 (GOOGMANB-000029871-75) (2009), at 73 (Google chief economist Hal
Varian argues that increases in data are subj ect to "diminishing returns''): Michael L. Katz et al., "An Economic
Analysis of Microsoft 's Allegations that Google's Conduct Hanns Competition by Reducing Birtg's Scale"(May 14, 20 12), at 46 ("Benefits of scale in search are subject to diminishing ren1rns. Click-and-query data are
an important input to Google·s search algorithms, but the value of incremental data in providing relevant search
results decreases as the amount of data available to those algorithms increases"); id. at I 04 ("the effect ofincremental advertisers on search monetization are subj ect 10 di minishing returns").
18
Brin Tr. 154:5-14. Brin did not state this premise as a mathematical certainty, only as an illustration of the"diminishing returns" curve. Preston McAfee, Yahoo''s former chief economist, suggested that "having 2-3
times as many user observations," particularly for ''tail" queries, would result in substantially more than a one
percent increase in quality- indeed, doubling a search engine's queries WOuld be "an enorn10US rdvantage."
McAfee suggested that a 3-to- 1 advantage in query volume could result in a 70 percent increase ~n "precision"for thlll search engine's ability to answer unique queries. Preston McAfee, Yahoo!, Presentatio1 "Scale, Data,
and Machine Learning: Solving the Search Problem" (20 II ), at 8.
79
See Brin Tr. 154: 15-158: 18 (testif)'ing that, based on publicly available infonnation of Microsoft's queryvolume, he doesn't believe that additional query volume would significantly improve Microsoft'~ search
quality). See also Michael L. Katz et al., "An Economic Analysis of Microsoft 's A llegations th~t Google's
Condtrcl Tlarms Competition by Reducing Bing 's Scale" (May 14, 20 12), at 47 (arguing that, "because of thediminishing value of additional click-and-q uery data and Bing's substantial and growing query \jolume, it isunlikely that query data from Google's exclusive syndication and distribution arrangements wou~d provide any
considerable value to Bing"); id. at 104-105 (Mierosofi already has a significant number of advertisers; any
increase in ads volume or clicks would result in insignificant additio nal yield).
80
See Microsoft EC Submission, at 26 ("The marginal relums for additional scale decrease once a platfonn
reaches a certain scale") (Mar. 31, 20 11); Susan Athey, '·Scale in Online Search" (Mar. 10, 2012), at 9 ("asquery volume grows, RPS grows quickly at first and then becomes flatter, as more and more of the mostimportnnt advcrti ~crs have already been attracted to the platfom1").
Rr Mic rosoft estimates that, in 1997, the size of the world wide web was approximately 200 million web pages;
by 2008, the figure wa~ approximately I trillion web pages; and today, there are anywhere between 5 and 2.0
trillion web pages. Susan Athey, ·'Scale in Online Search" (Mar. I 0, 20 12), at 11 . See also e.g., Schmidt Tr.
33: 15-25 (''the mte of growth of the Internet appears to be accelerating, so it's getting- it's getting worse faster,
if you will, prinlarily because of generation of ... user content").
8~ Susan Athey, "Scale in Online Search" (Mar. 10, 20 12), at I I.
MJ Jd. To this end, Microsoft conducted an experiment in 2008 that tested the effect on user enga~ement ofreversing algorithmic improvements. Microsoft found that, when it moved back to two-year-o1d algorithms(essentially eliminating two years' worth of user data), the search engine "s ignificantly reduced f1serengagement" with Microsoft 's search engine. Jd. at 13. Google came to the same conclusion w en it removed

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Sherman, Coogle Introduces Book Searches, Search Engine Watch. Dec. 16, 2003,
http://searchcngincwatch.com/article/2065619/Google-lntroduccs-Book-Scarches (Google launched Google
Print on Dec. 16, 2003):Tbe abo'e citations are linked-to from, Google's Official Webpage. Our History In
Depth, http://ww\\ .google.<.-om/about/company/history/#>20 12 (last visited Jul. 3 1, 20 12).
100 Mayer Tr. 67:3-18.
101 GOOG-Texas-1325832-33 (2010), at 33.
102 COOG-Tcxas-1486915-70, at 28-29. llmerous documents demonstrate Google's recogniti n of thjs
vertical threat. See, e.g., GOOG-ITA-05-0012603-16 (2009), at 4-5 ("Some vertical aggregator are building
brands and garnering an increasing% of traffic directly (vs. through Google): ... Strong content!is improving
aggregator organk rankings and generating higher quality scores, giving them more free and/or \ow-CPC
tratlic; . .. A growing% of finance/travel category queries are navigational vs. generic (e.g., so'1thwest.com vs.
cheap airfare). This demonstrates the power of these brands and risk to our monetizable traffic"); COOG-ITA04-0004120-46 (undated, c. Feb. 2009), at II (presentation discussing the "vertical specialist ch!lenge," andnoti~g that the "potent~a l thr~a ts to Google" incl ~ded ~·generic prod~ct sea~che.~· moving fro~11 G ogle ... to
Vert1cal aggregators," 'Vert1cal Aggregators takmg lugher share of last cl1cks before sale,' an "merchants
increasing% ofspend on aggregulors . . . vs. Google") (emphasis in original). CX-158 (GOOG ITA-060021809-13) (2005), at 10 (email from Bill Brougher, a Google product manager, stating, "what ·s the real
threat if we don't execute on verticals? (a) loss of traffic from google.com because folks search elsewhere forsome queries; (b) related revenue loss for high spend verticals like travel; (c) missing Opt)' if someone else
creates the platform to build verticals; (d) if one of our big competitors builds a constellation of high quality
verticals, we are hurt badly."); GOOGWRIG-000069488-524 (2008), at 489 ("Google's core business ismoneti..:ing commercial queries. If users go to competitors such as Amazon to do product queries, long-term
revenue will suffer."); GOOG-Tcxas-0274944-47 (2009), at 44 (discussing creation of a slide for the Google
Board of Directors about verticals from a search perspective, i.e., "users going to aggregators rather than[G]ooglc for specific queries'' and an ads perspective).
Ol See, e.g.• GOOG-JTA-04-0063246-55 (2009), at 47 (presentation laying out "four key vertical growth
opportllnities;• including finance (EU), travel, local, and retail). Most recently, Google bas introduced its own
social product, Google Plus, which competes with Faccbook, Twitter. and other social networking sites. See
Twitter IR (Dec. 13, 2011); Facebook IR (Jan. 24, 2012).
1~ By V1arch of2004, Googlc had launched the Beta form of a local vertical property to handle tbcal queries.
Juab Carlos Perez, Google Offers New Local Search Service , Info World, Mar.l7, 2004,
http://www. in foworld.comit/ap pl icat ions/ QOO glc-o ffcn;-ncw-1oca1-scarch-scrvicl:-56 I .
' 65 See, e.g, COOG-Tcxas-0197410-14 (2008). at I 0 (preparing presentation for executives showing Amazon
queries increasing and Google's fl at or declining, as "a strategic justification for the Product Search
Movement"); GOOG-Tcxas-0971713-27 (2008), at 13 (presentation discussing investing in content acquisition
to w_in mn~s/loca l).. For example, in shopping, Go ogle comm i~ted to. ma~si_ve inv.estment, introd~ced a newvers ron of 11s shoppmg vert1cal, and mtroduced new ways of d1splaymg mformatton from the v_e~1cal. In 2006,
Cioogle decided that its comparison shopping site, Froogle, hnd failed, and decided to stop wor~:g on or
promoting Froogle, while it worked on its new shopping product, Google Product Search. GOOf EC0076341-42 (2006), at 41; GOOC-Tcxas-0213227 (2006). Accordingly, the traflie to Froogle fi II
dramatically. Google launched Google Product Searc h to re place Froogle in Apr. 2007. Danny ullivan,
Goodbye Frougle, Hello Google Pmduct Search, Search Engine Land Apr. 18, 2007,
http://searchemrineland.com/goodbye-frooele-hello-googlc-product-scarch- 1 I00 I; GOOG-Tex~s-0216363(2007) (discussing launch of Coogle Product Search the following week). Shortly afterward, in fyfay 2007,
Google launched the product llniversal. See Press Release, Google Inc. Google Begins Move to Universal
Search, Release (May 16, 2007), previously available at
http://www.google.com/intllen/press/pressrel!universalsearch 200705 16 (accessed Feb. 1, 2012, ince removed
from this URL. copy saved by Staff); David Bailey, Anln:.ider "s View o.fGooxle ·s Universal Se rch,
previously available at http://searchengineland.com/an-insiders-view-of-google-universal-search (accessed
February I, 20 12, since removed from thjs URL, copy of article saved by Staft).
06
See CX-157 (COOG-Texas-0213579-580) (Oct. 5, 2009), at 580 (including slide for Google oardpresentation, "Vertjcal Search: Makillg progress on multi ple fronts." identifying Google venicals in images,
books, products. news, travel, health, real estate, finance, and mortgages). Google launched G<><kte Finance on
Mar. 21, 2006. AC arendmn & Katie Jacobs Stanton, Spring is the Seuson.for Love (and Data) Google, Mar.

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119

For example, in 2008, Google had the goal to "[i)ncrea'ic google.com product search inclusi<?n to the level ofgoogle.com searches with 'product intent', while preseiVing clickthrough rate:' C OOG-Texas-0227159-66(2008). at 60 ("2008 goal" for '·Google.com Integration"). Google had a goal for the fust quarter of2008 toincrease the triggering of the Product Universal to 6% for English sites. GOOC-Tcxas--0236963-65 (2008). at
63. In the second quarter of2008, that goal changed to increasing top OneBox coverage by 50 percent and top
CfR by I 0 percent, and to "[i]ncrease coverage on head queries. For example, we should be tfogering on atleast 5 of the top I 0 most popular queries on amazon.com at any given time, rather than only o e." GOOGTcxas..0227159-66 (2008), at 60. To increase triggering on head queries. Google also impleme ted a change totrigger the Product Universal on google.com queries if they appeared often in the product verti al. "Using
Exact Corpusboost to Trigger Product Onebox" compares queries on www.google.com with qu ries on Google
Shopping, triggers the Product OneBox if the same query is often searched in Google Shoppin< andautomatically places the universal in position 4, regardless of the quality of the universal result or user "bias"
for top placement of the box. GOOGLR-00330279-80 (2008) (Launch Report for algorithm c ange).
120
Sert, e.g., GOOG-Texas-0233970 (2007) (mandate from executive meeting to increase app arance ofUniversal Search results for all product-related querie~ as quickly ns possible); COOG-Texas- 004148-52(2007), at 48 (''Larry thought product should get more exposure"); COOG-IT A-04-0004120-4 (2009), at 36(presentation stating that Google could take a number of steps to be "#I" in verticals, including"[e ]ither[getting] high traffic from google.com, or [developing] a separate strong brand," and asking: "l ow do we linkfrom Search to ensure strong trctffic without hanniog user experience or Ad Words proposition foradvertisers?"); GOOCFOX~000082469 (2009), at 4 (presentation notes that Mortgage OneBox on Google.com''drives traffic to consumer front end"). ln order to speed up market share in shopping for Google, the shopping
team wanted a "strategic direction to dial up google.com inclusion,'' and had a list of session metrics showing
Google at #8 behind eBay, Amazon, Shopping.com, Shopzilla, etc. GOOG-Texas-0197424-29 (2008), at 24.
121
GOOC-Texas-0191859-61 (2008), at 59 (reducing the frequency of the product universal would "ced[e]recent share gains to competiton;"); GOOG-Tcxas-02 14339 (2008) (Jcn Fitzpatrick noting. "Long term, theproduct search team feels strongly that PS-universal is critical to maintai n and increase the share of productrelated (and therefore highly commercial) queries that people do on Google."); GOOCEC-0069974 (2009)(email from John Hanke, head ofGoogle local, to Y1arissa Mayer, "long term, I think we need to commit to amore aggressive path w/ google where we can show non-webpage results on google outside of 're universal'box· ... most of us on geo think that we won't win unless we can inject a lot more oflocal directly into google
rcsulls. "); COOC-Tcxas-0 199877-910 (2008), at 909 (''Google ·s key strengths are: Google.com real estate forthe -70MM of product queries/day in US/UK/DE alone"); GOOC-Tcxas-0909676-77 (2009), ~t 76 (Johnl lanke noting, "I think the mandate has to come down that we want to win (in local) and we are willing to takesome hits (i.e., trigger incorrectly sometimes). I think a philosophical decision needs to get made that resultsthat are not web search results and that displace web pages are ''OK" on google.com and nothinf to be ashamedof. That would open the door to place page or local entities as ranked results outside of some 'l3~al universal'
container. Arguably for many queries _all_ of the top I0 results should be local entities from oti. index w ith
refinement options. The currently mentality is that the googlc results page needs to be primarily about web
pages, possibly with some other annotations if they are really, really good. That's the big weak ess that bing isshooting at w/ the 'decision engine' pitch - not a sea of pointers to possible answers, but real a wers right on
the page.... ").
122
In the spring of2008, Google estimated that the top placement of the Product Universal would lead to an"annualized loss of $154 million" on product queries. GOOG-Tcxas-0 178597-607 (2008), at 598 ("ProductSearch Universallloldba~.:k Experiment"). The.: atht:rtisin!S team rcquc:.tcd that the Product Universal trigger
less frequently to reduce the loss of ads revenue. The Product Search team objected, presenting to executives
that: Google must retain and grow product queries: ··we face strong competition and must move quickly.
Turning down ooebox would hamper progress as follows - Ranking: Losing click data harms ~ing;
ft lriggering Losing CTR and google.com query distribution data triggering accuracy; [c ]ompre ensiveness:
Losing traffic hann s merchant growth and therefore comprehensiveness: fm)erchant cooperatio :Losing traffic
reduces eiTort merchants put into offer data, tax, & shipping; PR: Turning ofl' one box reduces Google's
credibility in commerce; [u)ser awareness: Losing shopping-related Ul on google.com reduces d~areness of
Google's shopping features.'' GOOG-Texas-0178597-607 (2008), at 607. Rather than reducin~ triggering of
the Product Universal, Google moved it down from position I to position 4 on the page, which reduced somecannibalization from the ads. See infra note 138.

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position, if users clicked on other lower-ranked properties, the property's rank would gradually decrease. Clickthrough rate is an important factor in detennining the relevance of other websites. Sec supra p. 14.
us Mayer Tr. 275:10-276: II.
136
Co-occurrence signals were u<>ed in many vertical areas. Regarding Google Product Search, see, e.g.. Mayer
Tr. 272:7- 277:8 (explaining that Google used the occurrence of comparisons opp
engines at positions 1-3
in the web ranking to boost Google's product universal to position one, because a C . E would appear if it has ahighly relevant product to the q1.1ery, and, thus, Google Product Search must also ave a higll.ly relevant
prod\1ct) (citing GOOG-Texas-0214363 (2009)). See alw GOOGLR-00161 8-8Q. (2009),.at(launchreport entitled "Product universal top promotion based on shopping comparis n [site]prescnce"~hat relies on a
162103 (20~9) (listing
list of"blessed sites" to trigger top promotion of product universals); GOOG
sites). Regarding Google Local, a local sites trigger - using, for example, Cit Search and Yelp appears tohave been introduced in 2007, see GOOGLR-00297666-69 (2007), at 06 ("adde a 'cooccurrin sites' signal tobias ourselves toward triggering when a local-oriented aggregator site (i.e. City, arch) shows u~ in the web
results''); GOOG-Texas-1324737-39 (2009), at 38-39 ("final trigger . .. inclu es web-based sigtlals such as
yelp et al"). Regarding Google Books, Google used Amazon as a trigger, see GOOG-Texas-01 Y,6298 (2009)(For books, we use Amazon as co-occurring site.''). Google appears to have considered a trigger for the finauc"OneBox" based on the presence of finance sites in organic results, but it is not clear it was launched.
GOOGLR-00257663-75 (2008), at 68.
u 7 See GOOGEC-0066150 (2009); GOOGLR-00162615-17 (2009), at 15. Googlc has provided someevidence that it has discontinued this practice with respect to Google Product Search in Dec. 20l0.
13~ Google did, at times, lower the position of certain Universal Search results. for example, in 2008, Google's
search quality team recognized that Google Product Search results were often of poor quality. See CX-168(GOOG-Texas-0214363) (2009); GOOGWRJG-000041022-23 (2009), at 22; GOOG-Texas-0197396 (2009);
GOOG-Tcxas-0180522 (2008), at 22 ("With regard to middle/top threshold, raters say it goes at the top but
clicks metrics suggest middle"). Around the same time. the Google advertising team expressed concern that thephoto , pricing infom1ation, and other rich data provided by the Coogle Product Search diverted users' attention
from ads, resulting in fewer clicks on ads. In the spring of2008, Google estjmated that the top placement of
Google Product Search would lead to an "annualized loss of$ 154 million'' on product queries. GOOG-Texas0178597-607 (2008), at 598 ("Product Search Universal Holdback Experiment''). In response to both concerns,
Google launched a series of"aggressive demotions" to move most Google Product Search result;s down a few
positions on the SERP. See GOOG-Texas-0178597-607 (2008), at 59S ("Product Search Universal Holdback
Experiment") ("We are executing an aggressive plan to further improve google.com user exper~·nee tor
products that we estimate will reduce annualized loss from - $130mm to - $45MM within 4 wee · s"); GOOGTexas.-0214409-11 (2008), at 9 (Nick Fox writes that "the product search team said they were g ing to do abunch of thi ngs to dramatically reduce the negative [revenue] impact of the product .... "); GO G-Texas017859?· 607 (~008), at 605 (estin~a. ting tha~ thes~ changes would rc~ult in the percentages of G~ogl~ ProductSearch m posmons 1, 4, and I 0 gomg from ·'85/0t 15" to ''40/35/25,' and a correspondmg reduc~on m loss ofadvertising revenue from $154 million to $70 million). Speci fically, in Jul. 2008, Google made ~hree algorithm
ch~mges to "aggressively demote" more top OncBoxes to middle OneBoxes. GOOGMANB-00pos6049-S4(20015), at 50. These were: (I) "Product Search Universal Triggering 2.0 [which] mainly moves them to a lower
position", id., (2) "Using Exact Corpusboost to Trigger Product Onebox", which compares quer~es with que1ies
on Google Shopping, triggers the Product OneBox if the same query is often searched in Google Shopping, andautomatically places the universal in position 4, GOOGLR-00330279-80 (2008), at 79 (Launch Report foralgorithm change); and (3) "Aggressive Demotion to Middle for Product Universal," which demotes fromposition one to position four if the product One Box does not meet a higher relevance threshold, the first web
result is navigational with high probability, or rwo out of the top three resulis are for a manufacturer. Th.ischange demoted about 51 percent of top product OneBoxes to the middle). GOOGMANB-000055473-76(2008), at 73-74 (Launch Report for algorithm change). See CX-168 (GOOG-T cxas-0214363) (2009);
GOOG-Texas-0197396 (2009). The "aggressiveness" of the demotion effort is debatable, as Google continued
to display Google Product Search results in the fourth position. And even t11ese tni nor demotions wereapparently quite controversial within Google. For example, Marissa Mayer "threatened to come to quality
launch review to defend keeping product w1iversal at [position] 1." GOOGWRIG-000041022-~3 (2009), at
22. In any event, these demotion efforts were short-lived, as Google quickly moved Google Proruct Search

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Google does not allow comparison shopping sites to advertise in ads with graphics such as Produ,ct Listing Ads
and Product Extension Ads which have higher clicks and conversions than text ads).
151
See Response to the Microsoft Economist Report on ''Anticompetitive Organic Search Manip\)lation" (Jul. 7,
20 I I) (stating the Panda update "was designed to e nsure a higher ranking for high-quality sites with originalcontent and information and reduce the ranking of, inter alia, 'content fam1s,' i.e., low-quality adtoriented
wcbsites. typically containing content copied from other websites.''); Economic Response to the omplaints byFound em and Ejustice.fr- RB B Economics (May 12, 20 I 0) (" ... Google applies a set of rules de igned toprevent sites that contai11 inappropriate content, mal ware or non-original content from showing u high in it'!
search and ad results."). See also Google's Webmaster Guidelines, Little or No Original Conten
http:l/support.google.com/webmasters/bin/answer.py?hl=cn&answcr-66361 (last visited Jul. 2, 0 12)
154
Although Google originally sought to demote all comparison shopping websites, after Google raters
provided negative feedback to such a widespread demotion, Google implemented the current iter tion of its socalled "diversity" algorithm. See GOOG-Texas-0 179485-92 (2006), at 85 (identifYing shoppin comparisons ites for demotion); GOOCEC-0148152-56 (2007), at 53 (testing algorithm that would result in 'SERP
declines between 8 and 20 percent" for shopping comparison sites); GOOGMANB-000007246-·p (2007), at
46 (launching the algorithm in Dec. 2007). Googlc claimed that the goal of this algorithm was to :increase the1diversity of Google ·s search results for product related queries." See Response of Google to DG 'Comp (Nov.
22, 2010), at§ 2.2, p.l.
Initially, Google compiled a list of target comparison shopping s ites and demoted them from the top 10
web results, but users preferred comparison shopping sites to the merc hant sites that were often boosted by the
demotion. GOOCSI~G-0000141 16-17 (2006), at 16- 17 (''We had moderate losses when we promoted an
etailer page which listed a single product because the raters thought this was worse than a bizrate or nextag page
which listed several similar products. Etailer pages which listed multiple products fared better but were still notconsidered better than the meta-shopping pages like bizrate or nextag..... "). Google then tried an algorithm that
wo uld demote the CSEs, but not below sites of a certain relevance. GOOGEC-0168032-33 (2006), at 32.
Again, the experiment £:1iled, because users liked the quality of the CSE sites. COOGSING-000014375-76(2006). at 75 ("The bizratelnextaglepinions pages are decently good results. They are usually we~-forma[t)ted,
rarely broken, load quickly ru1d usually on-topic. Raters tend to like them. I make this point becaase thereplacement pages that we promote are occasionally off-topic or dead links. Another positive as~ct of themeta-shopping pages is that they usually give a variety of choices. ... The single etailer pages te d to be single
product pages. For a more general query, raters like the variety of choices the meta-shopping site seems togive.") Google tried another experiment which kept a CSE within the top 5 results if it was alreatly there, but
demoted others "aggressively." !d. at 76. This too resulted in slightly negative results. /d.
Unable to get positive reviews from raters when Google demo ted comparison shopping sites, Google
changed the raters' criteria to try to get positive results. Previously, raters judged new algori thm~ by looking at
search results before and after the change ''side-by-side" (SxS), and rated which search result wa~ more relevantin ench position. COOGEC-0 168014-27 (2007), at 25. After the fi rst set of results, Google ask1d the users to·instead focus on the diversity and utility of the whole set of results, 111ther than resul t by •·esult, te ling users
explicitly that ''if two results on the same side have very similar content then having those two re ults may not
be mo re valuable than just having one." !d. at 23. When Googlc u·ied the new rating criteria with an algorithm
which demoted CSEs such that sometimes no CSEs remained in the top I 0, the test again came back "solidly
negative." ld. ut 19. Google again changed its algorithm to demote CSEs only if more than two appeared in the
top 10 results, and then, only demoting those beyond the top two. With this change, Google finally got aslightly positive rating in its "diversity test" from its raters. /d. at 16; C OOGEC-0148 152-56 (2007), at 52("Launch Report: Shopping Comparison Demotion''). Google finally launched this algorithm change in Jul.
2007. GOOGEC-0014649 (2007) (launching at one Google data center); GOOCMAN B-<100007246-47(2007), at 46 (launching to all remaining Google data center).
1<< Brent Rangen, Google Goes Boom on Low Quality Siles . .. So They Say, Search Engine Watch. Feb. 25,
20 II , http:l/searchcnginewatch.com/article/2049961/Googlc-Gocs-Boom-on-Low-Ouality-Sites.J.So-They-Sav;
Am it Singhal & Matt Cutts, Finding More High Quality Sites in Search, Google Blogspot, Feb. , 20 II ,h£tp://googleblog.blogspot.com/20 11/02/finding-more-hieh-gualitv-sites-in.html.
156
Google determined which websites would be demoted in two ways. First, Google had a grou of "spammters" manually rate whether certain websites would be labeled as "content farms,'' and thus, su ·ect todemotion. GOOGHUFF-000089790-93 (2011). at 91. Google provided specific instructions fo its spam

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off by 31% and 25% respectively"); Shopping.com Data Submission (20 12) (showing drop in visits from 1.62
million to 1. 17 million for the weeks before and after the second Panda algorithm launched in the first week ofApr. 20 11 ); Dealtime Data Submission (2012) (showing drop in visits from 1.38 million to 0.508 million in the
weeks before and after Panda initially launched in Feb. 20 I I). The drop in tr-affic to those websites also affects
merchants, who prefer getting traffic from multiple sources. The monthly traffic from Pricegrabber andShopping.com to Amazon dropped from the end of feb. 201 1 through the end of Oct. by, respectively, 35
percent and 30 percent. Amazon CID Response at 13. In addition, while traffic fi·om Feb 20 I 0 to 20 II
incrcas(;d 99 percent, traffic from May 20 l 0 to 2011 decreased by 12 percent. Jd. at 14. Staff has collected
evidence of several declines in traffic to other competing verticals due to changes to Google's SERP. See, e.g.,
FTC-NEXT-00000005 (20 12), at 70 (2007 search result page removal resulted in drop from ab9ut 900,000 toabout 500,000 visits).
168
See, e.g., GOOGEC-1068069-72 (2009), at 70 (Comparison Shopping Dcmoti.on- "This pn?ject is likely toaffect 1n1f~c flow to c?.mparison shopping.sites. ~he docum~nt lo~ated at [ci.ted document] giv9s a. detaile~
account of how tllJS affects the number of 101presswns of vanous s 1tcs. The Sites that lose the m~st 1mpress10ns
are, as expected, comparison shopping sites. The sites gaining impressions arc retailers and eve1} somegovernment and cdu sites."); GOOGEC-0148152-56 (2007), at 53 (Comparison Shopping De~otion - "Thelarge comparison s hopping sites see SERP declines between 8 and 20%"); GOOGEC-0015560 66 (2007), at
60 (With respect to removing search result pages from the index, "In the end here the various G9ogle
impressions the stores will be losing (not necessarily traffic to the stores, but correlated): ebay - 3.6M
impressions, amazon - 2.3M, dealtime- 150K, epinions - 200K, ke lkoo - 620K, overstock- SOK, pricegrabber
70K, shopping.com - 500K").
169
See, e.g., GOOG-T exas-1265906 (2010) (email noting that Google's local property now "dwarfs all otherlocal sites in the world"); GOOGFOX-U00029790 (201 1) (discussing traffic increase since launch of Google
Advisor vertical).
170
GOOG-Texas..()l99877-910 (2008), at 906. In its new iteration, Google Product Search took traffic fromcompeting comparison shopping sites, despite some "pretty terribly embarr-assing failures" with regard toreturning relevant product results. See GOOGWRIG-000041 022-23 (2009), at 22. See also GOOG-T exas0 192014-18 (201 0), at 16 (email noting that Google's product universal has increased shopping queries on
Google} and, related, GOOG-Texas-0004101-04 (20 10) ("Product OncBox Traffic Impact Analysis").
171
GOOG-Tcxas-U199877-910 (2008), at 907.
112
GOOG-Texas-0265014-16 (2010), at 14.
173
NexTag CID Response at 13.
114/d. at 12.
175
Websites engaged in " scraping,'' according to Google's launch report fo r '"scraper demotion" are sites "thathave authored less than 15% of their content .... " GOOGMANll-000037864-75 (2011), at 65. 1
176
Sec, e.g., GOOG-Tcxas-1 380771-73 (Jun. 2009), at 72 (email exchange discussing "scraping" review
content from Yelp in lieu of reaching distribution agreement with Yelp); see also Yelp IR (Jul. ~2, 2011);
Trip/\dvisor IR (.Jul. 6, 20 I I); Amazon IR (Nov. 18, 20 II ).
177
See, e.g, GOOG-Tcxas-1380771-73 (2009), at 71-72 (discussing imp01tance of Google Pla9es canying
better review content from Yelp). Google has since ceased scraping content (as of Jul. 2011), illj a "voluntary"
move a llegedly designed to transition its own local ve11ical property into focusing on "original content." See
Google IR (Jul. 20, 20 I I).
I
17~ Sc:e, e.g., FTC-YELPTX-00000163 and FTC-YELPTX-00000164 (2010) (email from Goolle to Yelp
attaching standard Google license agreement).
I?? See, e.g., Shopzilla lR (Feb. I, 2012) (stating that Shopzilla does not have the leverage to ne otiate the termsof the feed license; it is a take-it-<>r-leave-it agreement).
180
GOOG-Texas-0240698 (2009).
1 1~ GOOG-Texas-0182336-38 (2009), at 36-37 (discussing Googlc's usc of "scraping" Amazon's website toobtain Amazon Sales Rank of products, not available via Amazon's feed).
1112
See supra note 165: see also e.g., TripAdvisor JR (Mar 12, 2012) (web publishers "depend on search engines
to gain vis ibility. Otherwise they just remain as tiny blips of information. Without the card catalogue, nothingis going to get found in the library. Because Google is dominanr in organic earch, the ecosystef depends on
its services"). Websites believe that they need to make all o f their content available for Google o crawl
because this will improve their traffic from Google. First. websites believe that the more origin· I content they

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after we replicate their features)"); Hanke Tr. I 07:6-I 09:7 (citing CX-0055 and discussing risk tbat if Google
launched its own site, pam1ers pulled their review content. and users didn't contribute reviews, then Google
would risk having no review solution).
193
COOG-Texas-0996561-62 (2007), at 61; see also COOG-Texas-1074268-69 (2007), at 69 (email fromYelp CEO Stoppelman to Google's John Hanke upon learning about "the Google review feature in ~·1aps", "In
the interest of giving us enough time to negotiate in good faith, I'd like to request that you remove our review
and photo content from Google Maps before launching your feature next week. We're very uncomfortable with
Coogle launching a directly competitive feature and we'd like to opt out while discussing what might be done toalleviate our concerns.").
l'>4 COOGROSE-000082811-48 (2009), at 41 ("We have pa1t ially e nded up where we feared we would in 20071... 3~'~~ party content providers abandon Coogle .. . Limited success with our Reviews . .. Users b gin to start atreview sites for key categories/regions ...").
19' See Yelp IR (Mar. 5, 20 12).
·196
GOOG-Texas-0863053 (2009) (Eric Schmidt noting, when Yelp tumed clown Google's offep, "as you can
see the deal is apparently off ... [instead we need to] continue to build a g reat reviews product h~re at Google."
To this John Hanke responded "we'll come to the oc in jan w/ a plan. my sense is that we shou19 be prepared toinvest some real money ($1OOM?) building this up. It will require us spending on things (comm~ nity managers
as well as technologists, city-by-city community building, city-by-city marketing) that have beem hard for us to
wrap our am1s around and commit to in the past. ... " Eric Schmidt responded, ''Thanks. I completely agreewith your approach here and will definitely fund it !! thanks").
197
John Hanke, introducing Google Places, Google Blogspot, Apr. 20, 20 I 0,
htto:/ /googlcblog.blogswtcom/20 10/04/introduc ing-google-places.htm I# !/20 I 0/04/i ntroducing-googleRiaccs.html.
98
See Joh n Hanke, introducing Google Places, Google Blogspot, Apr. 20, 20 I 0,
htt p://goog lcblog.blogsoot. com/20 I 0/04!introduc ing-google-places.htm l#!/20 I 0/04/introducing -googleRiaccs.html.
i)i) GOOG-Tcxas-1363574 (Jul. 26, 20 I0) (" ... J noticed you're still using excerpts of our review content inlocnl without license and counting them as Googte ' reviews' , yet you've demoted Yelp to the bottom regardlessof freshness (happy to discuss, but we're not ok with this use of our content)").
200
TripAdvisor IR (Mar. 12, 20 12).
201
ld. (explaining that a lthough TripAdvisor received some traffic from Google's Places property, once Google
became competi tive with T ripAdvisor, T ripAdvisor had a reason to terminate the license, and the loss of traffic
was very small).
202 ld.
203

See CX.-67 (Google Blog, "Place Search: a taster, easier way to find loca l information") (2010) ("Today
we' re i~~troducing Place Search, a new kind oflocal search result that organizes the world's. in_fofmation aroundplnces. ); GOOG-Texas-I 012889-92 (201 0), at 89 ("[Manssa Mayer's] current proposal dtstmgmshes between
Search and 'Content' (Non-Search] pages, and accurately deems our 'current ' Place and Produc\ Pages to be'Content' [Non-Search] pages, and concludes: partne rs should be allowed to choose whether the~ want to be
included in such pages. I believe we all agree with Marissa on these (and all other) ideas .. ."). Websites pem1itor block web crawlers from crawling their sites by including a robots.txt fi le on their web site See, e.g.,w\.vw.yelp.contlrobots.txt; www.amazon.contlrohots.txt; www.google.contlrobots.txt. These files provide very
crude capabilities, telling crawlers whether they can crawl data or not, not how the sites may use that crawled
data. Web:;ites that are not crawled are not included in Googk web index and do not show up in organic search
results. Coogle's Webmaster Tools, Block or Remove Pages Using a Robots. txt File,
http:l/support.googlt:.com/webma-;tersrbinlanswer.pv?hl =en&answer- 156449&topic= 1724262&ctx=topic (lastvisited Jul. 2, 20 12).
2<14 GOOG-Texas-1041511-1 2 (2010), at 12 ("remove blacklist of yelp [reviews] from Web-extracted Reviews
once provider ba!.ed Ul live"); GOOG-Texas-1417391-403 (20 10), at 394 ("stating that Googi; should wait to
gublish a blog post on the new U1 until the change to " unblacklist Yelp" is "live").
05
GOOC-Texas-0222679 (2010) ("The competition in this space comes from two weaknesses: I. We do nothave much user-user or user-business communication on the Google platform. This is both a culf'ral andtechnological issue. 2. We do not have a complete solution wrt local businesses. We nm the risk thatcompetitors like facebook, twitter and yelp become the site where local businesses are discovere and interacted

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GOOGMAYE-000062536-537 (20 11), at 36 (Marissa Mayer wrote to Jeremy Stoppelman, "we do nothave the ability to immediately customize which search features a website is included in.").
217
See, e.g.. Hanke Tr. 143:20-144:8 (citing CX-61, GOOG-Texas-0864517-518 (2009), on providing perdomain blacklisting for Google local); Goodrow Tr. 116:12-119: II (discussing a few methods of preventi ng
product content from appearing in Google Product ~earch). Moreover, Googlc has also proposed to adhere 10
commit to precisely such an "opt-out" feature in its proposal to the EC. See Googlc-EC Settlement Proposal at
15-16.
213
Mayer Tr. 223: 1·1-224:7.
m Avni Shah, The Ongoing Evolution ofPlace Pages, Google Lat-Long Blogspot, Jul, 21, 20 I I, htttJ://googlelatlong.blogspot.com/2011/07/ongoine-evolution-of-place-pages.html. ("Based on careful thought about the
future direction of Places pages, and feedback we've heard over the past few months, review sui pets fromother web sources have now been removed from Place pages. Rnting and review counts reflect nly thosethat've been written by fellow Google users, and as a part of our continued commitment to help' g you findwhat y0\1want on the web, we're continuing to provide lin ks to other review sites so you can ge acomprehensive view of locations across the globe.")220
See, e.g., Goodrow Tr. 35: 18-22; &0: 11-22; & l: 11-23; I 09:18-1 10:7.
221
See. e.g.. Goodrow Tr. 77:2-16; 114:2-12; 164:18- J 65:9; 185: 14- 186: I I.
222
Amazon CID Response at 28.
223 /d.

m GOOG BRA0-000049034-35 (2010) (including email from Amazon executive Steven Shure regarding··Google's use of Amazon 's customer product reviews and ratings").
2~ GOOG-Texas-1039100-101 (2010), at 100 ("As I said on our call, we wo uld like Google to no longer
display or incorporate the Amazon product reviews information, including text and stars/ratings, which itingests [lhrough] its natural search crawl, within Google Product Search.... We ask thai you remove the review
excerpts fro m the display and the star ratings from your overall product rating calculation. Their current use is
without Amazon's pem1ission .. .. We would like you to get back to us in a week, by September 3ro, with a dateby which Google will be able to remove Amazon review information from product search. . .. 0'1 the surface itwould seem that we are simply asking you to make a change which directly parallels the recent ~hanges Google
has made in displaying Yelp reviews in Coogle Places .... Amazon's product review content represents asimilar proprietary asset and we do nm want it to appear in Coogle Product Search.").
I
226
GOOGROSE-000078506-08 (20 10), at 6 (''We arc preparing to remove Amazon's product Jeviews since
they gave us until Friday of next week.''); GOOG-Texas-1012889-92 (20 I 0), at 90 ("Amazon - let's tellAmazon lhat we were planning to change (the user interfacel anyway, but s ince we a re a few w~eks away frommaking revisions and because of (technical unccrtaintyj we will in the meantime take their cont~nt out of
Product pages by [date] ... stress that we're doing this out of respect fo r the relationshi p, but thlour decision~doesn't represent a change in policy]").
27
Amazon CID Response at 15 (explaining the value of Amazon's "massive amounts of custOJ er ratings forthe millions of products in its catalof is that "they accur~tely aggr.egate customers' ~·eviews a~ t any given
product and enable consumers to qwckly assess the percetved quality of a producl w1thout havt g to read often
lengthy text reviews'').
228!d. at 29.
229/d. at 28-29.
2'11/d.
231
Goodrow Tr. 4 7:2-49: 13.
232/d. at 67:6-68: I.
233/d. at 74:5-79:20.
2\.1 See. e.g., Goodrow Tr. 44:5-46: ll (describing benefit of having a product catalog and that with Froogle,
Google tried one method of developing a product catalog, but were not successful in the method that they chose,namely, clustering); GOOGEC-0 134533-631, at 617 ("We' vc demonstrated that unsupervised clustering
doesn' t work.").
m Amazon CID Response at 32-34 (detailing the considerable resources Amazon has expended in developing
its comprehensive and user-friendly product catalog of over a billion unique items for sale: effOiitS include
obtaining and developing content from merchants, vendors, and Amazon employees; entering i~ko various typesof business relationships to obtain catalog information from mcrchanls and vendors; developinglthe appropriate

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Keystone, Advertiser Multi-homing in Online Search Advertising in Europe (June 26, 2011), at 9 (datadiscussed in the text is U.S. data).
w The e figure represent th e upper bound estimates of the percentage of multi-homing advertisers in eachdocile. The likely actual percentage will be lower.
2
1>4 This is important because the availability of advertisements from smaller advertisers fills out a searchengine's coverage of queries, particularly for "tail" queries. See inji-a p. 98.
26
s According to Microsoft, approximately 49 percent of keywords with l 00 impressions or fewer per month arebid for only on AdWords; for "high scale" keywords, approximately 78 percent are bid for on both AdWords
and AdCenter. Susan Athey, Presentation, ''The Role of Scale in Competing in Online Search" ! arch 26,2012), at 9.
266
See Microsoft: IR (Jun. 11 , 2012). This claim may not stand up to scrutiny, however. Despit numerous
requests, Microsoft has not produced data to suppott th is assertion. In ad.dition, it is unclear on hat basis
M icrosoft is able to estimate the level of optimization advertisers perform on the ir Ad Words canlpaigns.
267
See Brew Gadgets IR (Jan. 30, 20 12); National Relief IR (Feb. 15, 20 12); Phoenix East Aviat110n IR (Feb. 29,2012); Speedy Soft IR (Feb. 6, 2012); Top Ilat lmagewear IR (Feb. 22, 2012); Yarn Market IR (~an. 13, 2012).
While it is true that some of the small advertisers interviewed were not interested in a cross-platform
optimization tool, their limited interest can be explained by unverified assumptions about a eros -platform
tool's u ltimate fi.tnctionality and varying opinions on cross-plattonn management's current trans~ction costs.
Sec Ekinoks and Lab Test Florida IR (Feb. 10, 2012): Portadam IR (Feb. 13, 2012); Wyzant fR CJan. 20, 2012).
lbS See Green Paper Products lR (Feb. 9 & 10, 20 12); Puppet U IR (Jan. 31 , 20 12); Top Jlat lrnagewear lR (Feb.
22, 20 12).
2 9
" See Brew Gadgets IR (Feb. 2, 2012); Top Hat lmagewear IR (Feb. 22, 2012).
210
See Phoenix Aviation IR (Feb. 25, 2012).
211
CX-36 (GOOGWOJC -000044501-05) (2007), at 3: see also GOOGAROR-000007146 {Sep. 25, 2007), at
slide 13 (emphasis added).
212
CX-41 (GOOGFOX-00128077-81) (2009), at 79.
m Holden Tr. 50:3-21.
m Sec id. at II 0, 122-123, 185-186.
m CX-40 (GOOG-JTA-25~0064254-55) (2008), at 54 (emphasis added).
276
CX-39 (COOCWOJC -000009350-53) (2009). at 51.
277
CX-47 (GOOGEC-0181955-59) (2009), at 56. Making explicit the connection between the iscussion ofrelnxing the restrictive conditions and contemplated new functionality for DART Search that would otherwise
violate those conditions, the engineer responsible for DART Search rep!ied "[w)e aren't ready t9 build a comingli ng product now.'' CX-0046 (GOOGWOJC-000058344-47) (2009), at 44.
278
CX-42 (GOOGEC-0180380-85) (2009), a.t 84.
279
CX-43 (G OOGEC-0180407-11) (2009) at 7.
28
CX-45 (COOGEC-0180400-06) (undated), at 5. I lolden was not certa in of his response to,, e originalquestion posed by the API product manager. Holden Tr. 166:12-13. But, he did believe th at C -0045 was the
document presented to Larry Page. Holden Tr. 174:6-20.
.
2 1
R CX-44 (GOOCWOJC-000059695-97) (201 0), at 95 ("As we expected, Larry was OK with tihe status quo
ns outlined in the presentation").
m See supra note 3.
m Holden Tr. 175:24-25.
2 4
s CX-182 (GOOG-JTA-09-0057720) (20 I 0) (I !olden writing to Wojcicki, "We didn't take notes for obvious
reasons (hence why I' m not elaborating too much here in email) but happy to brief you more verbally"). This
document is an unredacted version of CX-44 (GOOGWOJC-000059695-97) (Jan. 21, 20 I 0). During thehearing. counsel for Google indicated that the redaction was improper. Holden Tr. 197: I 2-24.
285
For a detailed overview of Google 's AdSense partners, see Appendi x I (Table listing exclusive agreements)
and Appendix 2 (Table listing preferred placement agreements).
2 1
M' Google Data Submission (Jul. 31, 20 12).
m Braddi Tr. 22:1 1-15.
2~R ln the early 2000s, Google identified these partners as important sources of user traffic becau~e the searchbar on the lSP/ portal page was the first thing the user often saw when tuming on the computer. $ee
COOGPAGE-000009322 (2004), at 3-24 (discussing Google's ISP access strategy in 2004). I

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Microsoft IR (Jun. I I , 20 12).
Wai-Man IR ( May 30, 2012).
312
Best Buy IR (Jun. 14, 20 12).
'n See Kayak IR (Jun. 20, 2012) (characterizing the abilit y to serve some Bing or Yahoo advertisements
alongside Google search ads as "wonbless" because B ing monetizes so poorly in relation to Google).
314
LAC IR (Dec. R, 20 12) (Microso ft sought an exclusive deal); Ama.~;on IR (Feb. 15, 20 12) (Microsoft andYahoo! both require page-based exclusivity so their ads cannot be mixed and matched with the advertisementsof their competitors.)
315
W1ll-Mart IR (May 30, 2012); Best Buy !R (Jun. l4, 20 12).
316
Amazon lR (feb. 15, 2012). Microsoft and Google apparen tly do have the ability to provide publishers withtechnical assistance to avoid duplication, but none of the publishers that identified this concern rppo1ted
receivi ng such assistance. See CX-113 (FTC-0000093-228) (2008), at I J0 (Google/Yahoo! proposed
agreement at §2.12, explaining that Google would use "commercially reasonable efforts" to exc~de AFS Ads
that contain URLs from corresponding results provided by Yahoo!); Microsoft !R (Jul. 20, 2012).
317
See, e.g. COOCKAP0-000006280-95 (2010), at 83 (discussing revenue improvements frorh lowering
revenue share and standard. iz. ing AdSense agreements with publishers.)~ CX-102 (COOGBRTNl 000025680-83)(2008), at 80 ("Our general philosophy with renewals has been to reduce TAC across the board"~;
COOGBRA0-0000 12890-944 (2007), at 13 (AFS strategy discussed in the 2008 AdSense Business Rev iew,
"we are instituting stricter AFS Direct revenue-share tiering guidelines by region . .. Our overall goal is toachieve better AFS economics for both new and renewing pan:ners."): CX- 106 (COOCKAP0-000006280-95)(20 I 0), at 83 ("2009 Traffic Acquisition Cost (TAC) was down 3 percentage points from 2008 attributable tothe application of s tandardized revenue share guidelines for renewals and new partnerships ... ").
~ 18 See, e.g. Business.com !R (Jun. 15, 2012); Time Warner Cable IR (Sep. 8, 2011 ).
319
CX-104 (GOOCBRAD-000048209) (May 3, 2010), at4 (Ql 10 Googlc TAC Summary).
J~ See, e.g., Business.com IR (Jun. 15, 2012); GOOG-A FS-000004666-68 (2007). at68; COOG-AFS000000316-27 (No\'. 4, 20 I 0) at 27 (2007 GSA had a 3-tiered revenue share of 80, 85, and 87.5 percent; the201 0 re newal had corresponding tiers of73, 75, and 77 percent).
1-'~ See, e.g. Time Warner Cable IR (Sep. 8, 201 1) (search adve rtising typically generates revenue well above
display advertising).
322
See, e.g., Comcast IR (Nov. 15, 2011 ); AOL IR (Dec. I , 20 I I ); lAC IR (Dec. 8, 20 II).
J2.l Best Buy lR (Jun. 14, 20 12) (contract is not exclusive); Kayak JR (Jun. 20, 20 12) (contract is not exclusive);
Amazon IR (Feb. 15, 2012} (contract is not exclusive- Amazo n res isred Google's attempt to impose
exclusivity); Wai-Mart lR (May 30, 2012) (describing the contract as not exclusive b11t noting t !at Google
requires preferred placement ifWal-Mart uses Yahoo! or M icrosoti).
·12~ See Google Data Submission (Jul. 31 , 20 12).
m cBay IR (Oct. 27,20 1 J).
111

J26 !d.

m Jd.
328 /d .
.I2Q!d.

JJO Jd.

~31 NexTag I R {May I0, 20 II).
m Td.
333
/d.
JH /d.
m Jd.
136 !d.

m Busincss.com IR (Jun. I 5. 20 12).

mtfd.
339 Jd.

340 Id.
'-~1 Td.
3 2~ Amazo n IR (Feb. 15,201 2).

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g Brin Tr. 3 19:13-320:15. Brin testified that Google has done some analysis of Facebook and {\mazon atsome point in the past (although not regularly), and does not recall getting regular reports on an~ other verticalcompetitor. According to Brin, "it's definitely [a] much harder comparison to make." Brin Tr. :. BI:IS-22.
379
See Department of Justice, Recommendation to Challenge Google/Yahoo Services Agreeme~t, 39 (Sep. 22,
2008) ('"[u]sers do not substitute foreign search engines tor U.S. engines, becau:;e foreign engines are notdesigned to deliver relevant information for a U.S. user''). See also Microsotl EC Submission 8~ (noting thatthe relevant markets at issue in this investigation should be defined by "national or linguistic bo~ndaries").
3
soSee Press Release, comScore, comScore Releases May 2012 U.S. Search Engine Rankings (Jt~n. 22, 2012)ht ://www.comscorc.com!Press Events/Press Releases/2012/6/cornScore Releases Mav 201 U.S. SearchEngine Ran kings.Google's market share has been measured as a share of the total voh1me ohm que searches in
the United States conducted across traditional search engines, as well as other "leaui ng" sites su has Facebook
and Wikipedia. Coogle's internal figures reflect slig htly higher market shares for Google, see, g., CX-183(GOOGWRIG-000086779-81 ) (2011) (reporting monthly market shares in Coogle's internal n'etrics ranging
between 69.4 and 83.5 percent, while the equivalent comScore nu mber for the :;arne period is 6$. 1 percent).
According to Sergey Brin, Google relies on both internal and external data sources when ex.ami~ing its market
shares, although all of the souJces "have their problems, their challenges." Brin Tr. 3 15:9-316:2. Brin testified
that he is more concemed with whether all of the data sources are consistent in their "trends," 1., whether
Google's share is going up or down, than the exact numbers. Brin Tr. 321: 11-23.
38 1
See Brad Stone & Brett Pulley, lAC's Bany Diller Surrenders to Google, Ends Ask. com 's Se rch Effort,
Bloomberg, Nov. 9, 20 I 0, htlp://~·v.:w.bloomberg.com/news/20 l 0-11-09/iac-s-diller-surrenders-to-googlejuggernaut-ends-ask-com-search-effort.html.
m Google has an intermediation agreement with AOL, whereby Google provides AOL with Google search andsearch advertising functionality. Microsoft EC Submission at 23.
m See Press Release, cornScore, comScore Releases .May 2012 U.S. Search Engine Rankings (JUJ1. 22, 20 12)
hllp://www.comscore.com/Press Events/Press Releases/20 12/6/comScore Releases Mav 2012 U.S. Search
En~ine Rankings .
.>s.a This number should be viewed with some caution, both because there can often be shifts of a percent or two
in the monthly comScore data, and also because there is really no good WHY to measure search share with highprecision. All oft he measures of search share have various methodological problems and limitations. See.
e.g. Brin Tr. 315:9-3 16:2 (noting that all of the internal and external market share numbers havetissues);
Schmidt Tr. 53: l 0-55:2 (noting that Google's view is that comScore numbers are always wro ng ; but see
GOOGMANB-000095004-07 (2011), at4 (Hal Varian, Google's chief economist, writes: "Tho 1gh I would
agree that ComScore is unreliable, it's not at all obvious to me that this matte rs much to us. Fro 1 an antitrust£crspcctive, I'm happy to see them underestimate our share.")liS See Press Release, comScore, comScore Releases May 2012 U.S. Search Engine Rankings (Jlm. 22, 2012)
htt ://www.comscorc.com/Press Events/Press Releases/2 12/ I omSc re Releases Ma 20 1 U.S. SearchEngine Rankings.
JN(I Microsoft IR (Jun. II, 2012) .

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I.\87 !d.
JHS See Bepco, Inc. v. Allied-Signal, Jm:., 106 F. Supp. 814, 830 (M.D.N.C. 2000) (70-75 percent~.

See also,e.g.• Exxon C01p. v. Berwick Bay Real Esrare Partners, 748 F.2d 937,940 (5"' Cir. 1984) (per curiam)("monopoliz..'ltion is rarely found when the defendant's share of the relevant market is below 70%"); Colo.
interstate Ga.1· Co. v. Natural Gas Pipeline Co. ofAm., 885 F.2d 683, 694 n.l8 ( l 0'11 Cir. 1989) (in order tocstnblish monopoly power, "lower courts generally req uire a minimum market share of between 70% and80%") (internal citation omitted).
389

See, e.g., Oahu Gas Service, Inc. v. Pacific Resources. inc., 838 F.2d 360,366 (9th Cir. 1988) (affirmingjury
finding that defendant had monopoly power despite steadily decl ining market share frum 100 percent to 68.2
percent at time oflaws uit). While Judge Learned Hand was '·doubtful whether sixty or sixty-foqr percent would
be enough;· see United States v. Aluminum Co. ofAm., 148 F.2d 416.424 (2d Cir. 1945), and the Third Circui t
has suggested that ''a share significantly larger than 55% has been required to establish prima facie market
PQWer." United Stutes v. Dentsp~y lm'l, Inc., 399 F.3d 181 , 187 (3d Cir. 2005), no minimum threshold has everbeen established. See Broadway Delivery C01p. v. United Parcel Serv. ofAm., 651 F.2d 122, 130 (2d Cir.
198 1). cert. denied, 454 U.S. 968 ( 1982) (holding that, while, "[s]ometimes, but not inevitably, it will be useful
to suggest that a market share below 50% is rarely evidence of monopoly power, a share betwee 50% and 70%

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~See, e.g., Amazon CID Response at 38; Clickablc IR (Oct. 24, 2011); Living Social IR (Mar) 3, 20 11). Seealso, e.g., Brin Tr. 178:5-21 (testifying that search ads convert much better than other types of advertising);
Schmidt Tr. 125:21-126:9 (same); GOOG-ITA-03-004551 1-18 (2009), at 13 ("Content conve1ions do not leadto sales like search conversions," attributing the difference to where display reaches users in the buying cycle
versus where search reaches users in the buying cycle); GOOG-ITA-13-00 00937-41 (2009), at 37 (Hal Varian
stating, "don't lump search advertising in with everything else- treat it as a separate category," further notingthat the recession has cut far more significantly into d isplay conversions than into search ad cot~ ersions).
40' Gian Fuglioni, Who Will Rid us of this Meddlesome Click?, comScore, Dec. 7, 2010,
httr:/Jhlog.comscore.com/2010/ 12/ri d meddlesome click.html ("TI1c average click rate (define~ as the percent
of paid ads that were clicked on) for paid search campaigns (3.5%) is massively (35x) higher than for display ad
campaigns").
40Q See wpra p. 9- J I & notes 43-48.
407
FTC-EBA Y -00000002 (20 12), at 3 I; A mazon CID Response at 38.
408
Booyah lR (Jan. 25, 20 12); Comcast IR (Nov. 15,201 2); iCrossing IR (Apr. 9, 2012) (seardj advertising isa lone at. the bottom of the marketing funnel, keyed to user intent); Core-Metrics (IHM) lR (Novl 4, 20 1 I);
Comcast IR (Nov. 15, 201 1); Priceline TR (Oct. 18, 20 12) (search has surgical precision and is Jnlike otheradvertising); Amazon CTD Response at 38.
409
Brin Tr. 178: 16-21 (search ads convert much better than other types of ads); G O OG-TTA-0 -0045511- l 8(2009), at 16 ("content conversions do not lead to sales like search conversions"); GOOG-ITA-01-0364176205 (20 I 0), at 95 (a picture depicting a hierarchy of conversion attribution placing paid search at the top
followed by organic search, display, affiliates, social networks, email marketing, direct visitation, and offline);
Group M IR (Oct. ll , 201 I) (contextual advettising is better than display, but not as effective as search at~cncrating conversions).
10
Brin Tr. 181:2-8 ("[Y]our average content page view is worth significantly less than your average search
page, no question about it."); Schmidt Tr. 129:6-130:5 (testifying that for advertisers that want to generdtc sales,
their money should go to search advertising first and then other forms of online advertising and then offline
advertising "[s]o the general feeling- and again this is con finned by experience - is that you would always put
text ads lirst and lhen display second which is still online.'').
41 1
Amazon CJD Response at 38 and Table 9 .2. See also e.g., Living Social C ID Response at I~ (no substitutefor search advert is ing); Group M IR (Oct. 11 2011 ); cBay IR (Nov. 4, 20 II); Didit.com fR (De~. 27, 20 12);lAC IR (Dec. 8, 2011); AOL IR (Dec. 9, 2011); Demand Media IR (Dec. 9, 2011); Kayak IR (Dec. 20, 2011).
m See, e.g., Demand Media IR (Dec. 9, 2011) (price increase will not cause shift to other forms of advertising);
EAS IR (Feb. 24, 20 12) (same); Kayak IR (Dec. 20, 20 11) (price increase would not cause Kay~k to spend lesson search advertising); Boo yah IR (Jan. 25, 20 12) (if prices went up I 0 percent on Google paid search, theadvertiser would not like it, but would pay it); Clickable lR (Oct. 24, 2011) (cannot divett adveiising dollars
from Google to other p latfonns); Wyzant IR (Jan. 20, 20 12) (would pay an increase of 10 perce t rather thanshift spend away from Googlc Adwords); Comcast IR (Nov. 15, 20 I I) (it would take a price in rease of morethan 50 percent to move any money from search advertising).
4 1
t. Living Social CID Response at 16; Did it Draft DecI. (2008) (would aftim1 to the principle thf t there are "nogood substitutes for paid search'' in 201 2); Amazon CID Response at 38-39; FTC -EXPE-0000 002 (2012), at
15-16.
41~ Livi ng Social CID Response at 16.
4 15
Apollo IR (Jan. 4, 2012); fox Studios IR (Jan. 20, 2012); Havas JR {Oct. 5, 2012); Sound World Instruments
IR (Jun. 24, 20 12). Generally speaking, it was difficult for many advertisers to answer the hypothetical- "whatwould you do in the face of an across-the-board price increase?"- because of the unique manner in which
search advertising is priced. Pricing of search advertising is based on what is known as a " Vickrey second
auction" model. The idea behind this auction is !0 give advertisers the incentive to bid their maximum bid,rather than tly to game the auction to pay as little as possible. In this type of auction, an advertiser is only
requi red to pay $.0 I more than the next lowest bidder. For example, three sports retailers are bidding on the
keyword "sneakers." Reta iler A bids a maximum of$1.00; Retailer B bids $0.50; and Retailer C bids $0.25.
All other th ings being equal (i.e., controlling for Google's quality score adjustments), Retailer A. will "win" thetop spot in the auction, but will only pay $0.51 to Google if a user clicks on Retailer A's ad. ~~~his way, theauction itself drives up the prices, and Google's "control" of prices is more indirect (although lfogle setsminimum bids and establishes quality scores that sets each advertiser's baseline bid). Notably, each time a

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h I ~ick-stat­
vahoos-search-ad-revenue-share-fall-81-vear/ (Emarketer.com estimates Google's share to be 7 percent in2010 and 80 percent in 20 11 ); See ADV Media Productions, Google Dominates Search Adverti~ing With 800/oMarket Share Unaffected by The Rise of Bing, http://www.advmediaproductions.com/blog/google-dominatespaid-seMch-advertising-with-80-market-share-unaffected-hy-the-rise-of-bing/ (last visited Jul. 16, 2012). See
also GOOGMA YE-000035824 (2009), at 8 (in 2009 Google estimated its market share 71.3 p11rcent). We
understand that BE Sta!T may be measuring Google 's share of the search advertising market basJe d on ad clicks
or impressions. We are unclear as to why BE would rely on this metric because a click on an ad does not
actually tell you anything about how much an advertiser is spending on any g iven ad on any giv~n platform.
The logical metric for estimating adve1tising share is advertiser spend (or advertising revenues),lwhich is themetric relied upon by all of the industry sources (see above) - and Google itself. See, e.g., CX- 16 (GOOGTexas-14R915-70) (2009), at 19-20 (evaluating "market share by size of ad revenue captured").
42
R Google Data Submission (Jan. 10, 2012) ( listing I ,280,983,000 advertisers in 2011 ).
429
Michael Liedtke, Microsoft Takes $6.2 Billion Hit On aQuanrive Online Ad Woes, Huffington Post, Jul. 2,
20 12, http://www.huf fingtonpost.com/20 12/07/03/microsoft-aquantive-online-ads n l645696.tltml (attributing
the growth to loss of share to Yahoo with Microsoft holding steady at 7 percent); Covario.com, Covario Finds
High Tech Global Paid Search Spend Rose 22 Percent in Ql over the Same Period Last Year, I
httn://www.covario.com/ news-and-views!newsroonv press-releClses!SIS-covario-finds-high-techcglobal-paidsearch-spend-rose-22-percent-in-q 1-over-the-same-period-la.<;t-ycar-) (last visited Jul. 16, 2012) (estimating
Microsoft and Yahoo!'s share of search advertising market to be a combined 13 percent). The remaining 4-12
percent of the search advertising market appears to be controlled by AOL and Ask, both powere<i by Google.
4 0~ Microsoft Data Submission (Sep. 23, 2011 ) (listing 3 13,345 total advertisers in 20 I I).
m Notably, while Bing and Yahoo! operate a joint search and search advertising network, they service
syndication clients separately. According to Microsoft this is a \'Cstige of Yahoo! 's many relationships withwebsite publishers prior to merging its main search and advertising operations with Microsoft. Microsoft IR(Jun. 11 , 20 12).
432
See, e.g., lAC IR (Dec. 8, 201 1); Earthlink IR (May 23, 2012); Amazon IR (Feb. 15, 2012).
m See, e.g., AO L IR (Dec. l, 2011); Earthink IR (May 23, 20 12).
4
H See, e.g., Amazon IR (Feb. 15, 2012); AOL IR (Dec. 1, 2011 ).
m See, e.g., Cablevision TR (Jun. 20, 2012); Business.com IR (Jun. 15, 20 12).
43~> See, e.g., Cab levis ion IR (Jun. 20, 20 12); Business.com IR (Jun. 15, 20 12).
437
Department of Justice, Recommendation to Challenge Google/Yahoo Services Agreement, 5 -55 (Sep. 22,
2008). The Department of Justice defined "search syndication" to inc lude both syndicated sear!h and searchadvertising, wherein intermediaries such as Google stmck agreements with website publishers t provide both
functionalities. Jd.
41' R See supra p. 67 (relevant geographic market for horizontal search is li mited to the United St!\tes) and p. 73(sume fo r search advertising). See Department of Justice, Recornmcndat'ion to Challenge Googl'e!Yahoo
Services Agreement, 39 (Sep. 22, 2008) ("[u]sers do not substitute foreign search engines tor U Is. engines,
bcc<Jusc forei gn engines ru·e not designed to deliver relevant informlltion for a U.S. user"). See J1so Microsoft
EC Submission 86 (noting that the relevant markets at issue in this investigation should be defirled by "nationalor ling uistic boundaries''). None of the parties have challenged the relevant geographic market.
439
20 II comScore qSearch20 Report. Amazon query volume has been a llocated between Google andMicrosoft according to the division described by the company. See Amaron IR (Nov. IS, 2011). Queries on
Cra igslist.org have been removed from d1e dataset because the site does not host either web search or searchadvertising. There are some significant inconsistencies in our datasets. Figures provided by Microsoft forYahoo! 's syndication query volume are staggeringly inconsistent with comScore's data ( I 07 billion in
Microsoft's data :;et v. 2.7 billion in comScore). We are trying 10 get to rhe bottom of this discrepancy now, but
understand that Yahoo! 's internal data may take into account so-called ''phantom.. queries (instances where auser hovers over a word in tex t and a link or ad appears), which would account for the discrepancy. Google's
market share would be considerably smaller taking into accoun t the Yahoo! figure provided by Microsoft.
However, we have reason to question the Yal10o! figure because it is inconsistent with the iStaffunderstand ing ofGoogle's dominance in this area. See Appendix 3 for a detailed explanation
calculated the relevant market shares using cornScore's dataset.
10 8.1% This Year. Emarketer.com, Mar. 23,201 1, httl://www.emarketer.com/blo • index.

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may be going directly to vertical sites, and if the queries we are losing are commercial in narure this may be areason for RPM declines"); GOOGFOX...,00025766 (undated), at 16 (In the UK, "Google losit.g 3-4% of rev
share p.a. to aggregators. . . . Aggregators instigating more sales. . . . Aggregators growing mu h faster than
Coogle. Potential lost revenue in UK> $100 million by 20 12). See also e.g., Brin Tr. 58:7-19 " ... if we'reserving our users poorly in whatever subsets of queries, we would definitely face significant re.Jenue erosion as
we got less usage.''; Schmidt Tr. 160:25- 161: I 0, 226: I 0-228:25, 229:23-230:25, 234:13-234:22 235:2-235:8,
236:20-237:5, 294:1-295:1 8 (".. . it's opportunity lost... And in our industry, it's important to &o very well ...
There was a concern that the aggregators were doing a good job in an area where we were not a - doing a goodenough job ... We want to compete. So that drove a - a discussion.").
458
Se11 Microsofi Corp., Microsoft Complaint to the European Commission (Mar. 3 I, 20 II). 'f1'is theory
di rectly tracks the Department of Justice's theory on the role of middleware in Mieroso.fi. Therf.' it was argued,
middleware represented a threat to Microsoft's operating system dominance not because the mi?dleware would
itselfreplace the underlying operating system, but because middleware provided an alternati vellatform onto
which applications could be written, which could be run irrespective of the underlying operatin system.
Lowering this so-called applications barrier to entry, in turn, lowered the costs for other firms t introduce rival
operating systems that could directly challe11ge Microsoft's dom inance over lntel-compatible o~erating systems.
Sim ilarly, here, Microsoft argues that a "key component" of its strategy in attracting users ha~en to partnerwith vertical websites so that Bing can offer a "differentiated generctl search experience to com ete withimproving
Google.'' !d. See also e.g., GOOG-Texas-1325832-33 (201 0), at 33 ("Oing has explicitly mverticals a key pa•t of their strategy to beat Coogle"); GOOG-JTA-0 1-033 1214 (2009) (email oting that Bingis focused on competing against Googlc in its "two top vert icals," shopping and travel).
459
Wh ile reduced innovation is at the heart of this theory, the role of pricing cannot be ignored, in that (as withother theories described later in this memorandum), the broader availabi lity of alternative search advertis ing
r:oatforms would operate as a constraint on Google's ability to raise prices to its advertisers.
See supra p. 30.
.
461
See supra p. 30-3 1.
462
In Micro ·oft. the government's argument that product improvement could be outweighed by anticompetitiveeffects did not fare well. The en hanc court considered a claim that Microsoft had designed certain software ina way that made Java a pplications both faster on its operating system and incompatible with rival operating
systems. Although the opinion stated that the appl icable test was th at "lhe incompatible produc~ must have ananticompetitive effect that outweighs any procompetitive justifi cation for the design," it held thft the fact that
product ran taster on Microsoft machines sufficed to make it legal standing alone and did not a{/pear to try tobalance that benefit aga inst anticompetiti vc effects. Microsoft, 253 P.3d at 74-75. Similarly, w ' le the D.C.
Circuit up held the lower court's ruling against Microsoft on the company's e fforts to integrate t e In ternet
browser with the operating system, it did so on particular integration aspects for which Microso t could provide
no justification. Where M icrosoft did provide a justification (namely, in oveniding users' choi e of a default
browser), the comt found no liability. 253 F.3d at 67-68.
463
See Response of Go ogle to DG Comp (Jul. I, 20 II ), at 2.
4~ See Shashi Seth, Beyond the Search Box, Yahoo Search B log, Jun. I 0, 20 I 0,
http://wwv,.,ysearchblog.c.om/201 0/06/1 0/bevond-the-search-box/. ("People no longer search t find a list ofblue links; they search to find answers in the shortest amount of time possible. We believe that surfacing theright information at the right time is more important than the number of total results delivered or number of
traditional queries conducted"); Greg R. Notess, Microsoft's New Bing - The 'Decision Engine, Information
Today lm:., Jun. 8, 2009, http://newsbreaks.infotodav.com/NcwsBrcaks/Microsof\s-Ncw-BingThc-DecisionEngine-54514.asp. (noting that :vticrosoft rebranded its MS search engine as Bing in 2009, du~bed it the''decision engine," and began incorporating universal blends similar to those used by Google and Yahoo!).
465
Google Search Innovation White Paper at 56- 58.
466/d. at 40.
461
The OneBox, predecessor to the Universal Search ''blend,'' showcased Google's vertical content in a box at
the top of the Google search results page. See id. at 34-45.
46lC Page Rank "relies on the uniquely democrdtic nature of the web by using its vast link structure as an indicatorof an individual page's value. In essence, Google interprets a link from page A to page B as aby page A,
receives; forfor page B. But, Google looks at considerably more than the sheer vo lume of votes, or links aexample, it also analyzes the page that casts the vote. Votes cast by pages that are themselves
rtant"

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design changes by monopolists that substantially disadvantage rivals or nascent threats, even w ere that conduct
does not rise to a Section 2 violation. Professor Herbert Hovcnkamp believes that the area ofmpnopoly
leveraging in industries characterized by network effects may be a type of exclusionary conducd uniquely suited
to standalone Section 5 competition enforcement. Herbert J. IIovenkamp, The Federal Trade O{Jmmission Act
and the Sherman Act, 62 Fla. L. Rev. 871, 885-87 (20 I 0). Hovckamp lauded the FTC's decisiob to challenge[ntcl's conduct with respect to graphic chips in the intel matter because he fe lt that Section 5 wjs uniquely
suited to deal w ith thorny issues relating to design changes by monopolists that disadvantage ri als, id., andbecause liability under Section 5 does not lead to the imposition of treble damages, and is appli d by an agency
that is able to develop expertise about partt' cularly complex issues such as design changes that nfbgatively impact
rivals. See also Areeda & Hovenkamp, Antilntsf Law, ,] 772h ("Another possibility is use of§ of the Federal
Trade Commission Act, whose prohibition of unfair methods competition can reach instances o leveraging
act ivity relating monopolized and nonmonopolized markets in circumstances where § 2 of the S 1errnan Act
cannot.").
45
ti See generally Eugene Volkh and Donald M . Falk, Mayer Brown LLP, "First Amendment Pr tection for
Search Engine Search Results" (Apr. 20, 20 12).
48
~ 2003 U.S. Dist. LEXlS 27193 (W.D. Okla. 2003).
487 !d. at *3.
4~R See Kinderstart LLC v. Goog/e, Inc., 2006 U.S. Oist. LEXlS 8248 1, at *30 n.6 (N.D. Cal. Ju . 13, 2006)(although not specifically reaching the issue, noting that Goog1c's manipulation of it.s search re Its might bedistinguishable from other fotms of protected expression because Google is not a media defend~nt, and website
ranking may be of little or no public concern, citing Jefferson County School Dist. No. R-1 v. Moody's
Investor's Services, inc. , 175 F.3d 848, 852 (I 0'11 Cir. 1999)).
4 9
a See Cemral 1/udson Gas & Elec. Corp. v. Puhlic Se11>. Comm'n. 447 U.S. 557,667 (1980).
490
Edenfield v. Fane, 507 U.S. 761 , 767 (1993) (quoting Ohralik v. Ohio State Bar Assn., 436 U.S. 447,457(1978)).
491
540 u.s. 398 (2004).
492/d. at 408 (quoting United States v. Colgate & Co., 250 U.S. 300. 307 ( 1919)): :.ee Pac. Bell Tel. Co. v.
Link/ine Communications. inc., 129 S.Ct. II 09, 1118 (2009) ("As a general rule, businesses are free to choose
the parties with whom they will deal, as well as the prices, tem1s, and conditions of that dea ling!') .
493!d. at 408; see Lin/dine. 129 S.Ct. at 1118 (acknowhedging "limited c ircumstances in which~ fim1's
unilateral refusal to deal with its rivals can give rise to antitrust liability").
4 14
472 U.S. 5~5 ( 19S5).
'49.1 Trinko, 540 U.S. at 409.
49
~ Trinko, 540 U.S. at 408-09 (describing Aspen Skiing).
497
hi. at 409 (emphasis in original).
498
93 Fed. Appx. l (5'" Cir. 2004) (unpubl ished op.).
499
fd. at 3.
500/d. at 4.
501
Jd. at 9-10. See also, e.g., Creative Copier Servs. v. Xerox Corp., 344 F.Supp.2d 858, 866 ( . Conn. 2004)~a ll owing plaintifrs ref~tsa l t_o deal clain~s t? go fotwa~·d where plaintiff alleg~d tha_t defen?ant ¥erox eng~ged
111 a voluntary course of dealmg wtth plamttff, then unilaterally "stopped dealmg wtth [plamtt11l or made 11
difficu lt for [plaintifl] to deal with Xerox" without a legitimate business justification). Conversely, several
courts have dismissed complaints that have failed to properly allege a " unilateral termination ofla vohmtarycourse of dealing." See, e.g., Covad Communications Co. v. Bell Atlantic Corp., 39R F.3d 666, 673 (D.C. Cir.
2005) (upholding dismissal of complaint where, among other things, plaintiff failed to allege that "the defendant
had previously engaged in a course of dealing with it<> rivals, or that it would ever have done so absent statutory
compulsion" (in ternal quotation omitted); LiveUniverse. Inc. v. MySpace. inc. , 304 Fed. Appx. 554, 556 (9'11
Cir. 1009) (unpublished op.) ('holding that a refusal to dea l claim requires a prior affim1ative decision or
agreement to cooperate, and upholding dismissal of complaint where voluntary, aflirrnative prior course of
dealing was not alleged); In re Elevator Amitmst Litig., 503 FJd 47, 52-53 (2d Cir. 2007) (interpreting the"sole exception'' to a defendant's right to refuse to deal as '\.vhen a monopolist seeks to terminate a prior(volu ntary) course of dealing with a competitor," and dismissing complaint where plaintiff failed to allege this).
Sec also Areeda & Hovenkamp, 772h ("As a general marter, court-imposed sharing obligationlcreated underthe very general provisions o f the antitrust laws must be restricted to circumstances where the d(endant

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offer to deal with a competitor on unreasonable terms and conditions can amount to a practical r.efusal tO dear');Aspen Skiing, 472 U.S. at 592-93 (noting that defendant offered plaintiff joint ticket deal provitd that plaintiff
agreed to accept a fixed percentage of profits considerably below plaintilis historical average, at a member ofdefendant's board of directors admitted that defendant made an offer it knew plaintiff would no accept, and thaton those facts, plaintiff did reject defendant's offer); Duke Energy, 93 fed. Appx. at 4 (premisi g liability forrefusal to deal on offer with terms that defendant "knew were unrealistic or completely unviable'' to plaintiff);
Creative Copier Servs., 344 F.Supp.2d at 866 (allowing refusal to deal claim to proceed based defendant's
delays in shipping, making certain parts unavailable, and raising prices on other parts). See als Areeda &l lovenkamp ~772cl (noting that, in Aspen Skiing, defendant did not actually refuse to deal with plaintiff, but
kept trying to reduce plaintiff's share of the profits until it "finally made an offer that [plaintifl] vould and didfind unacceptable").
~ 1 ° C.f in the Matte1· of Intel Corp., 128 FTC Decisio ns 213 ( 1999) (challenging lntd 's threat to ut off
customers from critical technical information unless those customers granted Imel Iicenses tote hnology
developed and owned by the customers).
Sl l See, e.g. , In the Mauer o,/Negotiated Data Solutions UC, FTC File No. 05 1-0094 (2008) (c9ndemning, as
unfair method of competition under Section 5, N-Data's reneging on prior patent owner's pri cin~ commitments
to stand.ard-setting organizatio~'. where (i) the conduct caused "subs t~~tial consumer injury" tha~ (ii) was "~-~t : .
. outweighed by any countervallmg benefits to consumers or compenllon that the practice prodt~;ces," and (m) 1t
was an injury that "consumers themselves could not reasonably have avoided") (quoting Orkin Exterminating
Co. v. FTC, 849 F.2d 1354, 1364 (lith Cir. 1988).
512
See Analysis of Proposed Consent Order to Aid Public Conunent, In the Malter ofImel Cor ., 128 FTC
Decisions 213 ( I 999), at *3 ("Unjustified conduct by a monopolist that removes the incentive t~ ... compet[e]by depriving innovators of their reward or otherwise tilting the playing field against new entrants or fringe
competitors ... has a direct and substantial impact upon future consumers").
513
See, e.g., .vticrosoft IR (J ul. 23. 20 12} (Qi Lu referencing well-known Silicon Valley investor who has
allegedly pulled funding from a variety of vertical websites).
14~ Mayer Tr. 152: I 9-24 (".. . it's not possible to be dropped in one place and not the other").
SIS See supra p. 37. Similarly, Google's almost immediate removal of Amazon product reviews from Google
Product Search indicates that technical barriers were quickly surmounted when Google desired o accommodatea partner.
516
Google allows newspapers to choose to be indexed for Google's web search results, but not~y Google
News. Sec Jonathan Simon, New User Agent for News, Google WcbmasLer Central. Dec. 2, 20 9,
http://googlewebmastercentral.blogspot.com/2009/ 12/new-uscr-agcnt-for-news.hunt; David Sm dra, Googh~News Now Crawling with Googlehot, Google Webmaster Central , Aug. 25, 20 I I,
htt :// • o •lewe mastercentral.blo s ot.comi2011108/ oo le-news-now-crawlin -with- oo lebot.html;
Vanessa Fox, Google Retires the Googlebot-News Bot, Search Engine Land,
http;//scarchcngi neland.com/google-retires-the- googlebot-news-bot-90607. The primary di fler nee between
Google News and the affected verticals here is that Google makes little money from Google Ne~s as a standalone product. Presumably, this lower-value vertical is one in which Google was willing to make certain
concessions that it was not willing to make in higher-value vertical areas.
m As demonstrated in the Microsoft opinion, courts are deferential in their treatment ofproduc innovations
with gen uine procompetitive qualities. See Microsoji, 253 F.3d at 75-76 (reversing finding of l i~bility withrespect to Microsoft development of a java script that allowed improved pe1formance, but was ihcompatible
with the j ava script pioneered by Sun .vticroSystem, Inc.); sea a/s(J Allied Orthopedic, 592 F.3d at 998-1002(finding that the inlroduction of improved sensors that were incompatible with competitors' monitoring systems
was no t antioompctitive). However, when evaluating comracrual restrictions attached to the product. theMicrosoft court had no trouble evaluating those contractual restrictions separately from the products they wereattached to. See Microsoft, 253 F.3d at 59-63 (condemning licensing restrictions for harming rivals, «not byimproving its own product, but, rather, by preventing OE.vts from taking actions that could increa;;e rivals'
share of usage"). This distinction demonstrates why the consumer choice model described in the BE Staff
Memo of Jan. 3 I, 20 I 2, at 23-24, frames a false choice. With the model. BE Staff compared overall welfare ofadvertisers with the API plus restrictions versus their welfare if no API existed. There is no support in the caselaw for limiting the choice in such a way when there is a third choice: the API without the restrictive conditions.
The analogous argument in the Microsoft case would have prevented the courts from considering the possibility

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correct ROI to their client and would thus be out-of-business.''); Clickable IR (Oct. 24, 20 11) ("Althoughadvertising across multiple platforms requires Clickable to use additional resources, Clickable wants toencourage this behavior nonetheless ... [a<;] advertising across multiple platforms helps its clients achieve thehighest return on investment (ROT).") Didir.com (Dec. 27, 2011) ("Didit manages client campaigns to maximize
ROI."); lnterpublic IR (Oct. 20, 201 1) (noting that "t he search advertising market is 'effectiveness driven,' ...
."); Kenshoo lR (f"ov. 9, 2011) ("Kenshoo's software is structured to primarily emphasize returp on investment(ROI) and scale, and to secondarily address brand awareness and exposure."); Raven Tools lR (Feb. 28, 2012)("Raven is limited on what they can do, so they focus their energy o n where lhcy see the most return.") Reach
Local IR (Jan. 12, 20 12) ("[t]he value in Reach Local's advertising campaigns stems from the return on
investment, time and opp01tunity cost savings, access to technology and software, and the kno\~fedge of its
staff.'').
m lloldt:n Tr. 64:20-65:9. A searc h for SEMs reveals hundreds of firms offering these services see also,
Varian Tr. I 07:4-1 08:4 (explaining that ad agencies act in a non-zero sum gam~; and their role i a positive one
for Google); Varian Tr. 149:22-150:11 (where there are numerous advc1tising agencies "they w · uld try tocompete in providing functionality and, of course, costs of developing tools that are appropriate to the needs oftheir c lients ... like any competitive market, they would try to address the needs of their potent~~ I customers.").
~JR CX-37 (GOOGWOJC-000031755-64) (2008), at 58 ("Market forces are going to protect G0ogle. Their (3'dparty, agencies) customers will drop that customer/agency. To the extent that someone is add in~ spammy stuff-they are going to worsen their own performance and this won't work out in the long run."), at 59 ("Won' tmarket forces drive developers to adopt [all AdWords functionality]? C ustomers will hound yoL or leave if you
don't offer it").
9s> To the extent SEMs and agencies have misaligned incentives, it would be with non-dominant search
networks, because the third parties' ft.rst priority would be to improve their clients' returns on Ad Words, thelargest search network, before optimizing on others. See, e.g., Varian Tr. 135:11-17.
540
GOOGAROR-000018605-16 (2006), at II (emphasis added).
~~ Holden Tr. 31:19-32: 16 (Google does not have reliable infom1ation about the ROI of advertisers using
agencies and SEMs); id. at 129: I 0- 130:14 (no record of any harm to Google from SEMs that were violating
terms and conditions).
~ 2 Holden Tr. 31:22-32:7 ("typically our assessments come back that rate of spend increases on advertisers
working through agencies."). See also CX-41 (GOOGFOX-000128077-80) (2009), at 77 (Goile study
limling lhat advertisers who use SEM tools have about I 3% higher spend growth than advertise who only use
the AdWords Front End).
543
Holden Tr. J 2S:7-IJO: 14; cf Google Submission to the EC, "Google's /\dWords API Terms and Conditions
Do Not Have Anti-Competitive Foreclosure Effects - An Analytic Framework" (Sep. 23, 20 11 ), at 19("Google 's online Ad Words guide explains: "getting the most ow ofAdWorcf.y requires ongoingexferimentation. ") (emphasis in the original).
51' AdWords Terms and Conditions, 111.2.f. provides: "All AdWords API Clients must expose ~t least as muchfunctionality as is set forth in the RMF List. If the RMF List includes a particular fimction, all a pects of thatfunction a nd all API calls related to that function must be enabled and exposed. AdWords API :tients will needto expose any add itional functionality added to the RMF List within 4 months after those functi9nalities areadded to the RMF List." The list of requirements is updated pe1iodically and posted by Google. See Google
Developers, Required Minimum Functionality, ht s://develo ers. oo le.com/adwords!a i/docs 're uirements
past visited Jul. 25, 2012).
4~ CX-192 (GOOGVARI-000006959R-61R) (2004), ar 6 1R. Later in that thread, J..Tal Varian ;s noted assaying, "We're the dominant incumbent in this industry; the folks pushing us to develop our APJ will be theunderdogs trying to unseat us." !d. at 60R.
<46 GOOGKAMA-000004812-13 (2004), at 12; see also GOOGKAMA-000015528 (2006), at~ (in response
to concern about Google advertisers migTating to MSN AdCenter. Google's response is "fight commodi tizationof search networks by enforcing Ad Words API T &Cs with SEMs").
·
547
GOOGKAMA-000004815 (2004), at I.
~4ll ld.
49s Ad 'Words API Tenns and Conditions, section 111.2.f ("All Ad Words API Clients must expos at least as
ll'lUCh functionality as is set forth in the Required Minimum Functionality List.").

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y.a The ''conservative" estimate includes in the '"foreclosed" group only the companies that have explicitly
complained to the Commission that agreements foreclose them from using a rival syndication service, and thatthey would like to do so, but for their current agreement with Googlc. This group includes only cBay. It should
also include ?\exTag and Business.com, however the comScore dataset does not provide numbe for thesefirms. The comScore dataset suggests that, under this scenario, 8,653.366,936 queries, or some 19.6 percent of
the market, is foreclosed. (If lAC is included within this group, the foreclosed query volume in~reases to
16,447,977,342, or some 37.3 percent of the market.) This is an extremely conservative estimatf because, as
noted above, courts routinely include all sales made pursuant to an exclusive agreement as bein foreclosed.
sns The "aggressive" estimate includes in the ·'foreclosed" group every company that is party to n exclusive
agreement with Googlc (sec Appendix I, table showing exclusive agreements), as well as every company that isparty to an agreement with the challenged "preferred placement" provision (.1ee Appendix 2, tab e showing"preferred placement" agree ments), except for any party that has explicitly told us that they do ot view the"preferred placement" provision as a baiTier to the use of a rival's syndication service. The excl1ded group
includes Amazon, Wai-Mart, and Google's online partners. Also excluded is Ear1hlink, althoug the comScore
dataset does not provide numbers for this finn. The comScore dataset suggests that, under this cenario,
29, 133,927,g82 queries, or some 66. 1 percent of the market is foreclosed.
566
The "intermediate'' estimate includes in the "foreclosed" group every company that is party t an exclusive
agreement with Google, as well as any company that is party to "preferred placement" terms an~ has explicitly
complained to the Commission that these terms foreclose them from using a rival syndication service, and has
stated that they would like to do so, but for their current agreement with Google. In addition to all partners withan exclusive agreement (see Appendix I, table showing exclusive agreements), this group includes: eBay (ands hould include NexTag and Business.com, but does not, given the limitations of the comScore dataset,
described above). The comScore dataset suggests that, under this scenario. 22.804,213.204 queries, or some51.5 percent of the market, is foreclosed. We believe that this is the most defensible position because it takes
into account both the exclusive agreeme nts- those companies literally forcclo~ed to competitors on the face of
their agreements - as well as any "preferred placement" agreements for companies that have explicitly
complained about the de facto exclusive effect of s uch agreements. Staff believes that this approach isconsistent with case law. See Omega Environmental. Inc. 127 F.3d at I I 62; Still Spark Plug Co., 840 F.2d at
1258.
~"1 20 I I comScore qSearcb20 Repon.
~~ Microsoft, 253 F.3d at 64; see also Robert II. Uork, The Antitrust Paradox 158 ( 1978) ("But here is no
doubt that predation can succeed when the distribution pattern is so much more ellicient than the alternative thatthose forced out of the pattern cannot compete").
SM Ryko Mfg. Co. v. Eden Senw .. 823 F.2d I 215, 1233 (8th Cir. 1987) ("When the degree offoreclosu.re causedby the exclusivity provisions is so great that it invariably indicates that the supplier imposing the provisions has
market power, we may rely on the foreclosu re rate alone to establish the violation.").
70s See Tampa Elec·tric Co. v Nasf1vilfe Coaf Co., 365 U.S. 320, 329 ( 1961); In re Belfone Elect1onics Cmp.,
I 00 FTC 68, 204 { 1982).
m See Micro oft IR (Jul. 20, 2012); Microsoft IR (Qi Liu, Jul. 23, 2012) (reporting that Microsoft's people
search program is better than Google's because Uing has access to Faccbook data and that Bing built a bettersearch system for travel queries than Google has.)~72 lAC IR (Dec. 8, 20 11 ).
m !d. indeed, as CityGrid explained, there are approximately 15- 17 million individual local businesses thathope to attract local customers throughout the United States. These local businesses are potential advertisers forwhich search advertising (particularly search advertising serving specialized or "tail'' queries) can deliver a very
high return lor investment. As such, these markets are highly lucrative for Google. and competition for thisadvertising revenue from specialized web-sites, such as CityGrid and UrbanSpoon, aggregately poses a
significant competitive threat to Google. For reference, competition in serving these local and specialized(vertical) markets is the same competitive threat Google contemplated it its 2007 EU planning document
entitled, "Online Advertising Challenges: Rise of the Aggregators." wherein Google saw local advertising
saw as amarkets in Europe as having many companies experimenting to lure ad\'ertisers it what Google"winner take all" market. See CX- 116 (GO OG-Tcxas-14869 15-70) (2009), at 21.
m lAC IR (Dec. 8, 2011).
m id.

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ourside of major syndication platfonns (i.e., those with sii,'llificant query volume, such as AOL and lAC), thecompany has not been focused on winning new search syndication business. Microsoft IR (Jun. II, 2012).
581
See Yahoo! IR (Scp. 14, 2011). Google and Yahoo! abandoned their proposed arrangement in the face of athreatened challenge by the Department of J1.1stice. Ultimately, Microsoft and Yahoo! entered i1o a similararrdngement in 20 I0.
m See :.upra p. 55.
59
lowering
H See, e.g. GOOGKAP0-000006280-95 (2010), at 83 (discussing revenue improvements fro
revenue share and standardizing AdSense agreements with publishers); Business.com IR (Jun. I , 20 12); Time
Warner Cable IR (Sep. 8, 20 I I).
590
Amazon IR (Feb. 15, 2012).
591 /d.

See GoogleEC Seulcment Proposal at 15-16.
~ 91 Google has offered this remedy to the European Commission as part of its settlement propos I. See GoogleEC Settlement Proposal at 26-27.
594
Acquisio IR (Sep. 12, 201 1); Resolution Media 1R (Nov. 7, 2011); Microsoft IR (Sep. 23, 20~ 1).
s9s Google has offered some version of a non-exclusivity remedy to the European Commission as part of its
settlement proposal, but has excluded ce11ain classes of syndication partners from its proposal. $ee Google-EC
Settlement Proposal at 21-22. As such, we do not believe that Google's offer is sufficient to rerbedy the
conduct addressed in this memorandum.
<% Adam Kovacevich, Coogle ·s Approach 10 Comperirion. Google Public Policy Blogspot, Ma)! 8, 2009,http://googlepublicpo1icv.blogspot.com12009/05/googles-approach-to-compctition.html.
I
Wl Google has offered this remedy to the European Commission as part of its settlement propos I.

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